Start-ups are increasingly popular today. However, many business ideas never get realized because of lack of financing. The banks do not really tolerate credit lines for startups.
There are many reasons for that. After financial crisis banks understood the people can’t give solid guarantee for the borrowing. The customers around the world simply lose purchasing power. The young start ups to do not have clients to buy their goods and services.
These reasons made the banks sceptic about issuing credits for startups development. The only entreprises that most probably will get business credit loans today are medium and big businesses.
What Threats A Person Faces Using Credit Line For Startup
As far as it is to hard to convince banks to issue a credit for startup, the entrepreneurs usually use personal credit cards for business purposes. However, even if it is a solution, it is a short-term one. Here are the threats the client faces if he uses personal loan to develop the activity of the startup:
- The banks can discover the money is not used for personal needs. Naturally to give push to startup development, more cash is needed than to pay for household goods. So, the banks can raise the interest rate on the credit plastic. The client can’t really make much about it except to pay the loan back accurately.
- The debt gets big very quickly and the person simply won’t manage to meet his financial obligations. He will start to miss the monthly payment due dates and get fine after fine.
- The start-up entrepreneur risks his properties. If bank does not get his loan back in time, it will simply confiscate the property the borrower has. That will be done according to court decision and there is no way to change it.
So, the client undertakes huge risk when using personal loan to develop start-up company. The person can undertake such a risk, but it is important to think twice before it.
How To Negotiate The Loan For Business Purposes
The banks do not gladly borrow money for all ideas, but a good business plan can convince them. So, each entrepreneur has to prepare one.
Such a document has to show in detail how the business will be developed. It is also to present to the banker the ‘Financial projection’ section. This part of business plan has to show how quickly your start-up will begin generating profit.
A good business plan can convince the banker to issue a credit. Prepare a good one and try your luck. There is a good chance it will be a success.