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Business loans

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Setting up a new business or expanding a current business can be expensive and you may not always have the finances in place to fund it yourself. A business loan can be a suitable solution to support and drive your company's financial future, whilst keeping control and not resorting to investors.  

Types of business loan

When looking for a business loan your first stop should be to check whether your business is eligible for a grant. This could be either from the government, local authorities or even the EU. There are normally pretty specific terms that restrict what you can do with the money but if you’re eligible it’s definitely worth applying as it is a free form of finance that could offer a helping hand.

If you’re not eligible for a grant then there are a number of business loan options available, each tailored to a specific set of requirements or circumstances.

Unsecured business loans

Unsecured business loans are loans offered by the banks, building societies and peer to peer lenders. Lenders rely purely on your promise to meet the repayments and do not require assets or property to be secured against the loan. This trust will be reflected in the interest rates offered, these are specific to each business and will be primarily decided on the creditworthiness of you and your business. Unsecured business loans are normally offered up to the value of £25,000.

Peer to Peer business loans

Peer to Peer business loans are independent of the banks and are arranged privately. They work by borrowing from businesses or individuals that are managed across a network. Applying for a peer-to-peer loan will require a good credit history and you will have to provide evidence of a business plan and all past financial performance. In return you can benefit from lower rates and readily available credit.

Bad credit business loans

If yourself or business has a history of bad credit then there are specific options that can be considered. Some banks will offer products for businesses with bad credit, however, before lending to you, your finances and predicted future income will be put under heavy scrutiny. There are some non-bank lenders that specialise in bad credit business loans however these will be offered at very high rates . Before committing to a bad credit business loan, compare alternative options first as if you cannot meet the repayments of a bad credit business loan you and your business can quickly take a plunge into financial difficulty.

Secured business loans

Secured business loans allow businesses to apply for larger amounts by securing the loan against their property or assets. Securing items against a loan comes with the obvious risks, but can provide a more accessible option for those struggling to find finance. It also can provide access to cheaper rates in comparison to those offered with unsecured business loans.

Acceptance criteria

Any company can apply for a business loan regardless of size, however, the acceptance criteria will differ from lender to lender. Some lenders will only offer loans to those that have been trading for a number of years, some will require a minimum annual turnover and others will solely be aimed at new businesses. In almost all cases you will need to be VAT registered and be able to show either past accounts or future financial forecasts, so be prepared.  

As part of the application process credit checks for both yourself and the business will be undertaken. Before applying for a business loan make sure you are aware of the credit status of your company as this will determine the best way progress with your loan search. If your company does have bad credit there are specialist options out there as highlighted above.

Things to watch out for

All business loans are tailored specifically to each individual business that applies. Interest rates will be calculated on a number of factors such as the company's credit history, the loan term and the amount being borrowed. Business Loans are generally offered at a fixed rate and paid back in monthly repayments. By paying back over a longer term you will have lower monthly payments.

Final word

If you’re looking to start a new business or expand a current business and need some additional finance then a business loan is a suitable option worth considering. However, with a number of different products available, each designed for varying requirements it’s key to compare your options so that you choose a solution that’s aligned with your specific business needs and provides the flexibility and affordability to drive your company forward.