Applying for a Loan

To take invention ideas further many inventors will seek loans from high street banks' small business programmes.

Depending on your circumstances, these can be a good option, with the attendant business development advice being helpful and allowing you to benefit from others' experience, but in many cases the terms offered may not be especially advantageous. You should certainly look out for special offers, such as free business banking, but also consider so-called 'soft loans' from governmental or other organisations.

Bank loans

If there's one piece of advice, which repeatedly comes back from inventors who've learned the hard way, it's this: Do not use your home as security for a loan. Many inventors have lost everything - including their families - through this route, and while some succeed on developing an invention with many unknown risks, is very rarely a sensible course.

To increase the likelihood of favourable loan terms, then, presenting yourself as an entrepreneur - a businessperson looking to involve the bank in a mutually profitable relationship - is essential, even if you think of yourself as a 'garden-shed-in-your-spare-time' inventor.

Preparing a credible business plan, which presents your invention in a commercial context, is not easy, since so many variables are unknown at this early stage. But there are some excellent guides and advice sessions available from local Business Link organisations as well as the banks themselves. You will need to consider how much ready cash you will need to pay for the next stages of the invention's development, outline clearly what stage you're at, and what the subsequent stages will be.

A patent application already submitted will probably help your credibility, but you may need the loan to pay for this in the first place, in which case your plan will need to be explicit about what each aspect is going to cost. Equally - a point that recurs frequently on programmes such as Dragon's Den - do not expect to use the loan to pay yourself a salary until the business is at least closer to generating its own cash. Realistically, you will need some other source of income during the earliest stages. Until the business is creating cash flow, you're something of a liability rather than an asset.

Making clear to the bank that the business plan is necessarily a 'live' document which will be updated in line with the business's development is a better tactic than trying to pull figures out of the air for future expenses and incomes which you are, truthfully, unable to predict.

Make your loan application and the accompanying business plan conservative but positive. Play up the strengths of your invention as part of a new business, run by a dynamic and competent entrepreneur (yourself), which within a few years may become an important client for the bank.

Soft loans

Soft loans are offered through government initiatives - such as the Small Firms Loan Guarantee Scheme - local authorities and some other organisations, such as development charities or foundations. Generally, they provide capital for development, such as that needed for R & D for an innovative new business, without the stringent security requirements of traditional bank loans. You will be required to match funding to some extent.

Sometimes the interest rates are low or even index-linked (along the lines of student loans); sometimes there is the opportunity to take interest payment holidays at times when the business's cash flow is strained. Since most soft loans are offered with a specific set of targets in mind, such as raising employment in a deprived area, or encouraging innovation or new business in a particular field, the criteria for applications can be rather disparate. Services such as J4B Grants maintain a database of the soft loans available and the criteria for applying.

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