{"id":2043,"date":"2023-05-26T14:01:46","date_gmt":"2023-05-26T02:01:46","guid":{"rendered":"https:\/\/marketingwebsite.afirmo.com\/nz\/?p=2043"},"modified":"2023-05-29T15:52:56","modified_gmt":"2023-05-29T03:52:56","slug":"getting-a-loan-to-start-your-business","status":"publish","type":"post","link":"https:\/\/www.afirmo.com\/nz\/resources\/getting-a-loan-to-start-your-business\/","title":{"rendered":"Getting a loan to start your business"},"content":{"rendered":"

Because of the risks involved, it\u2019s important to get professional advice to help you understand the options, fill in any knowledge gaps and prepare detailed financial plans to ensure you do the right thing. Not realising something important, or just being overly optimistic, can have disastrous consequences for your future financial wellbeing.\u00a0<\/span><\/p>\n

This article is designed to help you get started on understanding what\u2019s involved, so you\u2019ll be better prepared when you talk to a financial adviser and potential lenders.<\/span><\/p>\n

What are startup loans?<\/b><\/h2>\n

A startup loan is really just like any other business loan. It\u2019s mainly a marketing term used to help people who are starting a business feel more welcome and motivated to apply. It also allows the loan provider to use language and examples that are more relevant to people starting a businessfor the first time.<\/span><\/p>\n

Business term loans<\/b><\/h3>\n

Most business loans are term loans. That means you get a lump sum of money that you have to repay within a certain time, known as the loan\u2019s term. You make regular fortnightly or monthly repayments that include interest and a small portion of what you owe (the principal).\u00a0<\/span><\/p>\n

The interest rate can be fixed for an agreed time or vary according to market rates. It also reflects your risk to the lender, i.e. less risk can mean a slightly lower interest rate. One way to reduce the lender\u2019s risk is to offer something as security for the loan, such as a vehicle, house or other asset. However, if you can\u2019t meet your repayments the lender can sell the asset to recover what you owe, plus their expenses, and return the rest to you.<\/span><\/p>\n

Your repayments are calculated to ensure the loan is repaid in full by the end of its term. On a variable rate loan, if the interest rate increases, your repayments will also increase because the amount of principal being repaid has to stay on track and the interest component will increase. If the interest rate decreases, you may be given the option to reduce your regular repayments or keep them the same to repay your loan sooner than required. The second option can significantly reduce the amount of interest you pay over the life of the loan.<\/span><\/p>\n

On the other hand, the interest rate on a fixed rate\u00a0 will not change over the lifetime of the loan.\u00a0<\/span><\/p>\n

Business line of credit loans<\/b><\/h3>\n

A line of credit is like an overdraft or credit card, because there\u2019s a maximum amount you can borrow. You can draw money out (up to the limit) and use it for the purpose of the facility.\u00a0 The interest rate is normally variable (not fixed). Interest is usually calculated based on the daily balance, and is paid fortnightly or monthly from the same account.\u00a0<\/span><\/p>\n

Because of the freedom involved, a line of credit usually requires you to have a good record of earning money and managing it well. That\u2019s why line of credit loans are much less common, particularly for startup businesses and more common for existing businesses.<\/span><\/p>\n

Because of the inherent risks of a startup, the borrower will want to see a previous track record with a successful business, how much of your own money you are willing to invest, your credit history, the type of security you are willing to offer and any guarantors.<\/span><\/p>\n

Before you decide to borrow<\/b><\/h2>\n

As we mentioned above, a loan can remove flexibility, add to stress and even cause your business to fail. Before you dive in it pays to check these things:<\/span><\/p>\n