Starting a new business is a challenge and there is nothing more challenging than raising the finance to get things off the ground. At Bluestone, we have been supporting start-ups for more than 27 years to secure the funding they need to grow.

Here we explain how applying for finance might differ for a new start business, and what you can do to improve your chances of a successful application.  

Why use finance (rather than cash) to fund your new business?

Most new that businesses fail do so because they run out of cash. As a new start business, the demands on your capital will be many and varied; spreading the cost of assets and equipment via finance can help you avoid locking valuable cash in depreciating assets and take pressure off your cashflow.

It’s often advisable not to become over-reliant on a single source of funding, e.g., your main banking facility. By applying to specialist funders, you spread your risk and develop a broader range of strategic finance relationships.

In some cases, finance arrangements can also unlock significant tax savings that you wouldn’t see when using cash.

Applying for finance as a new business

In commercial finance, the term “new start” business can cover businesses that have been trading for a matter of days all the way up to completion of their third year of trading.

When a more established business applies for finance, funders will look closely at the business’ trading history, cash position, profitability. Of course, a new business may not have much – if any – trading history – so how do funders make their decisions?

Finance applications for new start businesses are assessed with much less emphasis on business performance, as underwriters are more inclined to lean on the immediate security available. They will also look at proof of affordability, i.e., you can afford the regular repayments by assessing bank statements and cash balances within the business.

Businesses in their infancy are often growing and profits might be reinvested into further growth the business – coupled with relatively short trading history and less in the way of filed accounts this means that it’s difficult for a funder to approve based on financial performance to date.

As any forecasts/future growth plans are subject to change, they may rely on the security a Personal Guarantee can offer.

What information will funders ask for?

If the business is a brand-new business and isn’t trading yet or has only just started trading, a full business plan is a necessity.

Typically, a lender will ask to see the below information to support your application:

• Last filed full set of accounts
• Any up to-date management information (to include both a Profit and Loss statement and Balance Sheet)
• Last 3-6 months business bank statements
• Personal Asset, Liability, Income and Expenditure breakdown (PALIE or a Net Worth Statement)

Some funders will take the time to understand the story behind a new start’s application as part of their underwriting process, so it’s often helpful for you to provide some background to the business and how the asset/funds will benefit the business in the long-term. For example, this might be funds for business expansion, or an asset that will bring in additional income.

How long should a business be trading before applying for finance?

There are some funders that will fund a business from day one. In these cases, they need to understand the story behind the people at the helm of the business, and ideally there will be some security on offer that gives them some security. For example, has the director run a business before? Were they successful? Is there a Personal Guarantee on offer?

Generally, funders are more likely to approve an application from a business that has been trading for 3-6 months, depending on the type of finance being applied for.

What types of finance can new businesses apply for?

Nothing is “off limits” to a new start business, as each finance application is assessed on an individual basis. The more important considerations are whether security is available and whether the agreement is affordable.

“Hard” assets (like machinery or technology) can sometimes add security to a deal as a funder will knows the equipment holds certain value in case an agreement has to end prematurely, but the main decision will still centre on the customer itself.

For very new businesses, e.g., those in their first year of trading, loans can sometimes be slightly easier to secure than asset finance. This is because there are specialist funders that want to lend to these types of businesses and have a better understanding of the risks involved.

In summary, when it comes to funding for new businesses, it’s always worth an initial conversation with our team. We can help you to explore your options and if you are struggling to secure a particular type of funding, we may be able to suggest an alternative which better suits where you are on your journey.

Why choose Bluestone?

Access to specialist funders

With one of the largest funding panels in the UK, you will benefit from a whole-of-market approach including access to funders specialising in new start businesses, including funders that are happy to consider a business without a trading history and, in some cases, non-homeowners.

Independent expertise

Truly independent, our team of seasoned experts will make sure that they get to know you and your business to ensure that we match your needs to be the best finance solution for you.

Speedy credit decisions

Quick decisions give you peace of mind that you have your funding secured, taking the pressure off so you can plan with confidence. In some cases, funding applications can be approved on the same day.

Ongoing, dedicated support for your business’ growth

We recognise the demands of setting up and running your new business, and our processes are designed to take the pain away, handling everything from the paperwork through to supplier payments for you, so that you can concentrate on what your good at.

You will be assigned a dedicated account manager who will work with you to understand your ambitions and challenges and help you to secure the right funding solution.

Looking for funding for your new start business?

Contact our friendly and knowledgeable team today using the form below and we’ll be in touch as soon as possible to help.

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