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"Take the plunge:-101 things you need things you need to know before starting up your own business" : Bank finance and loans

Posted: 03 Nov 2011 in Blog Business Startup

If you are self- employed, getting a separate bank account will help you keep the business’s affairs tidily away from your own. Indeed many people who do, and many who don’t, keep good records, do follow a rule of putting all their transactions through a business bank account. Come the end of the year, the accountant (or they themselves) has a good record to work back from.

If you are a limited company, you will need a separate bank account as the company is legally a separate entity from you. Opening an account for a company requires a board resolution (see Board structures) but a typical bank application form itself is such a resolution and provided you keep a copy for the company, that box is ticked.

The bank will want to see usual identification (typically passport and recent utility bill) for each signatory and each major shareholder and will frequently grant 18 months free banking to a start-up.

Banks however do not like to give money away willy-nilly. So, to get a loan to help fund your business will normally require your business to score a satisfactory number of points on a secret scoring system. If you are a start-up with no sales or profits, you will likely fail any such system. However, if you personally guarantee the loan (remembering this means you’ll have to pay it back even if your business folds under you) you will make better progress. But if the personal guarantee is called - with no functioning business - where will you get the money from? Our normal advice to anyone – is not ever to be guarantor for your business.

There are however three other sorts of loans to consider:

  • Asset backed loans are where business equipment, stock or debtors is put up as collateral (see Factoring and Asset Finance). So provided you have some of one or more of these, it could be a source of funding.
  • A loan under the recent Enterprise Finance Guarantee scheme (a successor to the Small Firms Loan Guarantee Scheme) where the Government guarantees 70% of your loan and so in theory at any rate, the bank is more likely to make an advance.
  • Regional development funds are also available as loans in the more remote corners of the UK e.g. The Highlands and Cornwall, or in the more deprived areas e.g. Bow in London, Toxteth in Liverpool etc.

Top tip: Locate your regional development agency and thoroughly explore all the corners of its website in pursuit of regional loan funds, grants and other support and advice and your bank for small business loan documentation so you know how to present back.


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