Anyone who has a business idea but no own capital is in a dilemma. Without capital, one’s own idea is difficult to put into action. There is still a possibility to start your own business. Many banks and financial institutions offer young people who need start-up capital for their own businesses the opportunity to borrow. But what are the risks of the loan?
Types of loans for young entrepreneurs
It is important to know that not all start-ups need the same amount of money. Some have enough equity that they can put into their business without being dependent on credit. Anyone who already has a lot of equity, or a smaller sum for the implementation of his idea needs, for example, a sum below 25 000 €, can also fall back on the so-called micro-loan. Every federal state in Germany owns several banks offering such micro loans. But you should watch out for the high interest rates.
Another option is provided by private foundations and private investors, which offer young entrepreneurs the opportunity to lend their own capital to a company.
If a sum over 25 000 euros is needed, then you should contact his house bank. The own house bank knows the young entrepreneur best, because she has an overview of possible account deductions, equity and other funds.
The classic among start-up loans for entrepreneurs is the start – money. The advantages are that comparatively low interest rates are paid. In addition, you get the loan without equity approved. The safest is however the own house bank, which is in the picture over the own finances. The prerequisite for this, of course, is that the house bank is convinced of the business plan.
Pitfalls in borrowing
- Lack of business success
Possible problems for young entrepreneurs are obvious. If the business idea does not work as intended, the creditor will not get the money back. Thus, on the one hand the credit unworthiness would be lost. Once again, no financial institution will be able to approach the company with confidence.
- High interest burden
Once a loan is taken, then the interest must be repaid. And if there is no money, then debts are accumulated. Interest rates can become a big knit trap if the initial bills in the business plan are miscalculated. Some financial institutions, for example, which lend microcredit, require relatively high interest rates.
If these are too big in the end, this can lead to problems even if the business is going well but still does not pay so much that the interest can be paid. If the money is then not enough, you can slip into debt even in a good running business.
- debt accumulation
Having agreed that money flows back to the lender later, but the business is not doing well at the time, can also be a big problem with debt accumulation. So caution is required even with such companies!
What to do with bad Private credit?
Once the Private credit is aware of the creditworthiness of an entrepreneur, it can have serious consequences. No financial institution issues loans to already indebted persons. It does not matter if it is a private debt or corporate debt. In general, it is very difficult to get a loan, if there is a bad Private credit.
But you do not have to despair, because different financial institutions approach this thing differently. It is best to consult with a management consultant. This can best depending on the present case, tips to which financial institution you should contact. The steps that can be taken are best learned from a management consultant.
Since every lender has its own advantages and disadvantages, young entrepreneurs with a bad Private credit must make very careful preparation and selection. It works best – even with a bad Private credit – if you can prove a sum of equity.
Each bank handles its customers differently. One bank is always more risk-averse than another. You have to get in touch with various financial institutions and try to negotiate as skillfully as possible, so that you leave a good impression with the bank. Reasons for the bad Private credit should always be given and explained. Because perhaps the reasons were not catastrophic, so that decides the respective financial institution for a loan.
Current interest rates and market trends
An exact number of interest can not be named, since each bank has different specifications. With a loan amount of between € 1,000 and € 12,000, the annual percentage rate of interest ranges between 0.99 and 7.99 percent. Other banks offer an annual interest rate of around 9.52 to 17.91 per cent on a loan of between € 1,000 and € 25,000.
It therefore always depends on the bank and the economic development, how large the interest rates are. If the economy is not doing very well, then young entrepreneurs have to be prepared for higher interest rates. Interest rates on lending to start-ups are usually always high, as lenders depend on entrepreneurs to start.
If the company fails, the financial institution does not get the money back. This is a big risk that can only be settled with high interest rates.