Q: I’m in the process of starting a small business acting as a sole trader and want some info on being lent the start-up funds. Who would be the best business loan company or should I go to my bank, would I have to put something down my self and would my home be at risk if things went wrong?
Apr 16 2006
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Answered by: Clive Lewis Ask a question
Starting a new business is inherently risky and you should consider trying to increase the odds on success by starting on a part-time basis to test the business model, demonstrate whether the business has potential and as a way of minimising any initial finance requirement.
Friends and family are often a good way to finance the early stage of a business but arrangements should be put on a business footing with a written agreement between the parties about the duration of any loan, the interest payable and repayment terms.
As a sole trader you have unlimited liability which means that if the business incurs losses or ultimately fails, your creditors will have a claim on your assets including your home. Any finance provider would expect you to demonstrate your commitment and confidence by contributing to the funding.
There any many finance providers and deciding which would be best for your new business depends on the assets you wish to acquire.
If you are looking for working capital then a bank might be a good start. Whatever source you seek finance from consider the terms of any offer of finance – the interest rate, repayment terms, period of the finance and other conditions such as requiring management accounts to demonstrate the business is succeeding.
For more information on business finance go to the Finance and Grants section on SmallBusiness.co.uk.
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