Most early-stage entrepreneurs fall out of a permanent job due to multiple reasons. Some leave jobs to concentrate on and groom the business idea, while others suffer due to layoffs. Unemployment is a harsh phase on the financial and mental front. Apart from working on the business idea, the person ensures basic living requirements.
Moving ahead in your business ambitions and operational excellence requires the best combination of expertise and finance. Getting finance as an unemployed for your start-up is the trickiest phase.
Every lender providing business loans requires a form of security like- income, asset as collateral, guarantor, etc. Unemployed lack consistent income and collateral, and finding a guarantor becomes impossible. Non-payments and inactive spending lower the credit history. These aspects lower the chance of loan approval.
The blog discusses the top challenges unemployed face while setting up a business and solutions to overcome them.
How unemployed can get par with the obstacles to getting startup loans?
Accessibility to business start-up loans depends on the circumstances. You may get a loan if you were a businessman before going bankrupt. You can get one by providing the strength of recent finances. Here are some common challenges you may face and possible solutions to securing start-up loans for low credit history:
1) Challenge 1- Meeting the general operational history criteria
Usually, lenders require startups to have at least 6 months of operational history. Unemployed with limited income and sources can hardly register the business and operate legally. It leads to loan rejection. Lenders with no tangible proof of business history and initiatives find it hard to rely on the borrower for finances.
Solution– Effort toward getting a regular income alongside working on your business idea. Work towards legalising and patenting the idea. Register the business and operate under the firm’s name legally. You can dedicate your time post-business ideation in- drafting a business plan and getting clients without spending much. Approach lender after consistently operating for 6 months.
- Challenge 2- ensuring consistent income and revenue
Business loan providers analyse the borrower’s loan repayment capacity by analysing the existing income. Lenders reject the application since it is challenging new businesses to provide comprehensive transaction data of clients’ dealings.
Solution: Apart from ensuring a regular income as an early-stage entrepreneur, ensure comprehensive client data. Work on your business ideation and key drivers to get clients. Try to eliminate any risky clients that may impact your business model. Improvise the benefit you get by working with a respective client and how it helps you achieve the ultimate finance.
Meanwhile, you can check government grants to get initial finance. However, you may not get much, but it can help you meet critical business requirements. If you do not qualify for one, check guaranteed loans for the unemployed from leading direct lenders for business needs. It is easier to qualify as it does not hold cumbersome requirements that you may experience with government grants. Moreover, you can get minimal cash help on the same day without undergoing overwhelming checks and documentation.
3) Challenge 3- Getting a loan with low-interest rates
Individuals without any income stream often have a bad credit history. Getting a business loan as an unemployed with low credit is challenging. It is because of the high risk that the lender share.
SOLUTION: If you lack sufficient income to qualify, you can get in a guarantor. It is easier for the earning couple.
If you are self-employed, but your partner is a regular employee with a consistent income, she may operate as a guarantor.
As a responsible lender, we analyse the income compatibility for repayments before approving. On approval, you may qualify for better interest rates on the business loan. Here, you and your partner both will be responsible for the loan payments.
- Challenge 4- getting all the documents, including taxation as an unemployed
A lender may ask for certain documents before approving a business loan. We ask for proof like bank statements, self-assessments or taxation records, financial inflows from shareholders, company profiles and partners, business plans, and balance sheets of the last 3 years.
SOLUTION: If you have designed your business plan well and have a profit and loss statement as a new business, we may consider application. We would still need relevant proof of the company registration, balance sheet, and bank statements of at least 3 months.
Spend time researching the requirements, registering and building your Venture, and ensuring sufficient taxation records and legal documents, including the company owners and partners. However, you would need financial backup to meet legal business requirements.
You can get start-up business loans for bad credit on guaranteed approval in the UK. These loans are easier to qualify for and meet short-term business needs. You may get it with stable finances, pending invoices, and some capital.
5) Challenge 5 – Ensuring good client retention
In the initial stage of business and with limited capital, the business finds it hard to find and retain a client base. Without a good client base with regular sales, business never grows. New startups cannot dedicate much to online marketing. It proves struggling to get sufficient clients in that circumstance.
SOLUTION: If you have any customer who reaches out to you often, check whether you can offer him any discount. Run constant emails about your new products and offerings for special and regular customers.
Apart from that, resort to free marketing tactics like- SEO, Social media marketing, business listing, word-of-mouth marketing, and reels to promote your products and create engagement. It would not only have a positive impact but would cost you nothing.
By doing so, you may gain some reliable customers. If your products and services are standard in quality with customer-friendly business terms, you can retain clients easily.
- Challenge 6 – Getting more cash help with limited revenue
Early startups usually require flexible capital to optimise business infrastructure from the bottom line. Getting a sufficient amount from a lender with limited revenue backup is challenging.
SOLUTION: Initial stage of business is the trickiest part for the unemployed. If you have assets you can stake, you may get a flexible amount from a lender. Usually, it is not ideal to put your precious assets as collateral when you have no income stream. You can co-sign the agreement with someone having stable finances and a credit score. It can be your business partner.
Bottom line: Unemployed individuals can get a start-up business loan. All you need to do is prepare before approaching the lender. From ensuring a regular income to registering a company and getting your first payment from the customer, require consistent efforts. Sufficient operating history, stable finances, and a good business plan qualify.
Anna Johnson has more than 11 years of experience in direct lending industry of the UK. She is the Senior Content Editor at 24cashflow where she is leading a large team of loan experts. During her career, she has helped the loan aspirants to use the particular loans in the best way and improve their financial lives and status.
Anna Johnson is known for her in-depth research of the UK loan marketplace, as she has worked with many major lending firms in her career. During her educational phase, she has done a research on ‘Finance Fundamentals for Growing Business’.