Business Loans

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What is a business loan?

A business loan gives you the opportunity to inject or invest capital into your business to help it grow, develop and scale. With loan amounts ranging from a few thousand to hundreds of thousands of pounds, over time periods from months to years, there are a vast range of lenders and possibilities to suit every need. 

Who can apply for a business loan?

Any business can apply for a business loan, although some lenders may only lend to limited companies and refuse start-ups. There is then specific eligibility criteria which must be passed to secure your funds. 

What are the different types of business loans?

Unsecured: An unsecured business loan allows you to borrow funds without risking your business assets as security. However, in this case, the loan is often taken out in the name of the individual and therefore could affect your personal credit rating. 

Secured: Secured business loans use an asset as security for your loan. 

How do I choose the best business loan?

One of the most obvious ways of comparing business loans is by looking at which lender has the most favourable interest rates. There are then a number of other factors to consider, including the terms of the loan, the setup fees as well as any early repayment fees. You might also want to consider the terms of the loan and if you are required to offer a business or personal asset as security. This aspect could be difficult for new businesses with few assets. Speed and flexibility are also important considerations. It may be that you simply need the money as quickly as possible or that you want the option of paying off the loan early without any repayment fees. It is really important to take a critical analysis of the entire market and prioritise by your needs, rather than just going for the option with the lowest interest rates

What is the difference between bank lending and peer to peer lending?

When a bank lends someone money they will not try to influence the way in which they run the business. However, an investor will look to have an impact on the running of the business and have a say in how their investment is spent. That being said, banks are generally risk averse, so it could be more tricky to qualify for a bank loan and the process often takes a longer period of time. Applicants may as a result,  not receive all the money they had originally wanted, or in the time frame required.

Does a business have a credit rating?

Yes, a business does have a credit rating which usually impacts the businesses ability to get a loan. 

What types of purchases can you use a business loan for?
There are a whole range of reasons you could use a business loan, and you just need to demonstrate that the cause is viable and crucial to the long term success of your business. Examples could include:

  • Purchasing stock 
  • Taking on new staff
  • Paying off debts 
  • Buying new equipment 
  • Expanding operations

How many loans can a business have?

There is no set number of loans that a business can have. However, with each loan you will have to prove that you have the means to make the repayments. This may be for example, through demonstration of a business plan or a clear suppliers list. 

What are the different methods you could use to get a business loan 

Bank Loans: These are loans provided by your bank or building society. Your business borrows a lump sum which you then pay back over a set period of time. 

Most bank loans will require a director’s guarantee – this means that if your business is unable to pay for the loan, your director will have to pay it back from their personal funds. 

Revolving credit facilities: With a revolving credit facility, a business owner pays a commitment fee to a financial institution which they can withdraw as and when they require the money. It is generally used by businesses to cover their operating costs where they may experience sharp fluctuations due in their cash flow due to unexpected costs. 

Short Term lending: An individual looking for a short-term loan would be looking for anything from a few days to a few months, but typically has very high interest rates. 

Asset Backed: With a loan of this nature, individuals are able to use an asset to secure the loan allowing them to borrow more than is normally permitted in a standard loan. To secure the loan you could use machinery, property, stock or land. [on the PDF there are additional words which should not be there “xpected costs.”]

Government start-up: Government start-up loans are provided for by the government for the specific purpose of helping Start-ups to access low-interest loans and even grants, as entrepreneurs look to set up their business. With this loan you can look to borrow up to £25,000 which is to be paid back over one to five years. 

What are the alternatives to a business loan? 

Cash Advance: This loan works somewhat differently, as lenders or credit card companies allow you to borrow money which can then be repaid as a percentage of your future credit or debit card payments. With Cash Advance loans there aren’t necessarily interest rates, but instead a fee is agreed at the beginning and a percentage is taken daily until the loan is repaid. 

Invoice finance: This form of lending works in a different way from other modes of funding on the market. Invoice financing allows a lender to buy your outstanding invoice for a lump fee, meaning you can access cash quicker. There are two main ways of guaranteeing this type of loan:

Factoring: For this option the lender will then chase the payment directly from customers with outstanding balances. 

Invoice Discounting: In this scenario the lender will give you a loan on your invoice. You will then owe them a pre-agreed, outstanding balance. 

Peer to peer lending: An increasingly popular mode of borrowing money, peer to peer lending websites and platforms connect lenders and borrowers. Traditionally, the website or platform will take a small fee off the top as commission. Offering low rates, it can be a fantastic option for those with low credit rating and be a great way of injecting some cash into your business. 

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