Overdraft or business loan?

[Chambers1]

Hi, I am just starting off in business and have so far funded everything myself. However I now feel I need some extra help paying my personal bills and keeping myself afloat to start with. Most of my initial payments will be through small deposits that will pay for the materials and then a further payment later down the line at the time of the job. Therefore until I get jobs coming in I wont have enough to cover everything. I know I should have looked at funding earlier but I'm really scared a bank will try and sell me a loan I wont be able to pay back. should I look at an overdraft instead? Any thoughts would be great. Thanks

 

[Scalloway]

You really need to speak to a bank. Anecdotal evidence is that both business loans and overdrafts are hard to come by these days.

 

[ethical PR]

Have you applied for tax credits?

 

[alice_p]

Take a look at all the different funding options available - there are many out there on the market. Be sure of what you can afford.

 

[Better Business Finance]

Hi Chambers1

When you apply for bank finance, your bank will ask you for a variety of details. Most banks usually provide a detailed guide to help you through your application, but this checklist provides a good starting point for your preparations.

First, outline what you need

1. How much you would like to borrow?

2. Why do you need the finance? The bank needs to make sure it’s for a suitable business purpose.

3. How long would you like the finance for? This helps your bank make sure you can afford the loan as well as ensure you get the right kind for your business needs.

Next, show your ability to repay the loan

1. Cash-flow forecasts

2. Assets

3. Business plan

4. Management accounts

5. Historic accounts

Are you a start-up? The first three will usually be enough.

Finally, add any additional information that might help your application

1. Management profile: Describe your skills and experience so the bank can assess your capabilities.

2. How much capital have you invested? This will demonstrate your commitment to the business.

3. Can you provide security? This will make your application safer from the bank’s point of view. It can also give you access to more competitive rates.

4. Do you have any other business interests? This allows the bank to understand any other commitments you have in case they have an impact on your loan.

Hope this is helpful!

 

[businessfunding]

Pretty much the above

What your bank tries to sell you is irrelevant - you need a facility which is appropriate to you. The only way to establish this is to compose a detailed cashflow

As a big generalisation (far better information one-to-one), overdraft is good if you regularly swing in and out of debt

Loan is good if you have a specific purpose and consistent cashflow to service repayments

Invoice finance if good to service a growing order book

Then there are various "dip in" facilities if you really just need facilities a few times each year

In turn the lender will look at various forms of security ranging from the underlying asset to a charge on your house.

Be sure to take dedicated advice and not just to rely on generic opinions

 

[PaulThompson]

The two posts above pretty much nail it, however don't take what a bank manager says as gospel, if they can't come up with what you need then there are many other options out there, other banks, and many other lenders. You should try a broker, we 3 will help or try and find a local one through NACFB
Hope this helps

 

[k100danny]

Your ability to be given either of these will depend on lot of factors, most banks will NOT give you an overdraft until you have been trading a minimum of 6 months and a lot of them a year. The same with a loan unless you want to offer a personal guarantee that it will be paid back. We were very lucky and barclays offered us both very early on but our business generated a lot of cash and this was shown on our bank history. I opted for an overdraft, usually a minimum of one year which you will be charged for wether you use it or not or that's the case with my bank, we used the overdraft maybe 3 times over a two month period and each time were only in the red for around 7-14 days but we now have to pay for the overdraft for the full year.

it totally depends on your situation though and what your cash flow is like to which will be best for you. I think anyone on here would be hard pushed to give you advice with minimal knowledge of your situation.