Turning a business dream into money-earning reality takes hard work and money. Swoop’s in-house start-up loan expert says that there is also a psychological barrier to overcome and the application process is itself a valuable exercise for any entrepreneur.
Is it a good idea for a business to start in debt?
This is the question we put to Laura Taylor, Strategic Partnerships and Start-Up Champion at Swoop.
“The reality is that most businesses use finance as part of their ongoing operations. To believe that you can start a business without investment is not the best mindset, because if you believe that relying on finance means failure, every successful business is, in your eyes, a failure.”
Laura believes that there is often a psychological barrier that stops people from starting their own business.
“Understandably, people do not like the idea of being saddled with debt. Committing to repayment of thousands of pounds can feel like a huge burden, especially in the early stages of a new enterprise. But it boils down to this: if you do not have confidence that you can repay a loan, you don’t have confidence in your business.“
Taking out a start-up loan, which can be up to £25,000 per director of a new company, makes the proposition real. Commitment forces the founder to evaluate whether their business idea is realistic in the first place. If a business cannot support the repayment of a loan, it’s unlikely to also support the founder in other financial goals, such as paying the mortgage and putting food on the table.
“Every business has an understanding of what it costs to acquire new customers. With an established business, that cost will be reduced by reliance on a large amount of infrastructure. For a new business, you have to put that infrastructure in place, which can be an upfront cost beyond your own ability or willingness to fund it from your own pocket.“
Whether that upfront cost means buying machinery, inventory, or putting down the first month’s rent on premises, money turns the wheels of a business.
Start-up loans are deliberately priced at an attractive six percent per annum. Other loan products might be cheaper, but start-up loans come with mentoring which can be extremely valuable in itself. Laura explains:
“Mentoring can identify the gaps in the founder’s knowledge and advice on things such as hiring to fill skill gaps, marketing and other areas which may be outside the founders area of expertise. Most new businesses start up because the founder has a vision: they find a way of doing something better or making a product that people need. Founders tend not to start a business because they have a yearning to do more back office work.“
It is in the lender’s interest to get a return on their investment, which Laura describes as a useful ‘stress test’ for whether an objective professional believes your idea has potential.
“Entrepreneurs and founders need to overcome the psychological barrier of getting into debt for their dream. Once funding is secured, the apprehension quickly flips over into affirmation. Getting the money is a psychological boost. It is easy to get friends and family to support your idea, but for it to work in the real world, you need real customers. Successfully getting a loan is an indication that your business really does have legs.”
For more information about start-up loans, visit Swoop.