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A Guide To Finding The Right Business Loan In The UK

If you are planning to get into a business startup or venture, your source of funding needs to be clear. There are a few critical things that you must keep in mind. For example, you must answer these questions:

Do I need a small business loan? If so, how much cash do you need? How soon do you need the cash? Weather you’re looking for a start up business loan, or bad credit business loan, we compare the best lenders for what’s right for you.

How do you plan to invest the money? Do you have any collateral? Answering such questions determines if you will succeed in finding a funder. For inspiration, here is a guide that provides answers to several questions that are frequently asked about business loans.

What Is A Business Loan And Can It Be Used For A Startup?

A business loan is the amount of money that is given to individuals and companies either to start up a business or to grow an existing one. As an individual, you may procure a business loan to add stock, open branches or improve sectors within your existing line of business. You may want to start a new venture.

If you own a company, you may request business finance on behalf of your brand to hire extra staff, buy new equipment, buy more company cars or procure a new premise. Ideally, the term business finance applies to small and medium-sized enterprises. So, if your organization is a bigger one, you qualify for a corporate funding and not the regular type of loan.

What Are The Funding Options Available for Small And Medium Businesses?

Loans for businesses come as two major categories: secured and unsecured loans. For you to get a secured loan or business mortgage, you need to have some collateral. This may be in form of a property, asset or personal vehicle. The collateral gives the lender (usually the bank) the right to repossess your property when you fail to pay the loan as agreed.

On the other hand, an unsecured loan is granted without the provision of collateral. Besides the two divisions, loans for businesses can be categorized according to their suitability. You may access the following categories of business credits:

  • Startup Loans: This type of credit is specifically for new businesses. The loan gives you the capital that you need to start and run your new venture. The loans are mostly backed by state agencies.
  • Bridging Loans: If you are a real estate developer or investor, this is the type of loan to consider. A bridging loan is meant to inject huge cash into your real estate business. Instead of investing your own cash, you can always go for this loan.
  • Tax Loans: If you suffer tax liabilities, there is a loan that you can apply to save your reputation and that of your brand. With a tax loan, you get enough money to clear the tax debt in a specified period.
  • Commercial Mortgage: These loans are for investing in commercial buildings. If you want to procure a property for your business and don’t have enough cash, you can ask your bank to offer you a commercial business mortgage.
  • Business Credit Cards: This type of loan is for business owners who prefer to pay the credit consistently until a limit. Business cards can come in both secured and unsecured forms depending on the limit you receive from your lender. Unsecured is usually available up to £25,000 and then any requirement above this would need to be secured against the company’s assets or even a personal guarantee from the Director.

Who Can Lend Me A Small Business Loan?

You can get a business loan from a range of lenders, including banks, micro-finance, crowd sourcing platforms, and the government. According to the 2015 Small Business Enterprise and Employment Act, major UK banks are legally mandated to refer loan applicants who they deny loans to alternative lenders.

The decision was reached after it was understood that over 100,000 individuals were denied loans yearly due to low credit scores. In this case, you can get bad credit loans from lenders even if your credit score is unimpressive.

How Much Finance Can The Lenders Issue Me?

The size of a loan issued by a lender depends on several things. For example, the lender will look at your credit cards performance, size of business, borrowing history, collateral, and business plan. If it’s a start-up loan, you can usually borrow £500- £25,000. However, if you are asking for a business mortgage loan, you may borrow more depending on the lender’s rates and the value of your target property.

What Are The Repayment Terms?

The time limits for paying back the loans depend on the type. For instance, a bridging loan requires you to make a full payment within a year of borrowing. On the other hand, the repayment period for commercial mortgages is 10-25 years depending on the amount borrowed and your ability to pay back. Mostly, the longer you take to pay the business loan, the greater the interests that you will pay.

Who Should Apply?

Essentially, every loan has its guidelines on who qualifies to apply. As a rule, you must be 18 years and above to qualify. You will also need an impressive credit score if you want to get the best APR rate from your lender. Additionally, you shouldn’t have convictions during the last 6 years.

There are banks that will ask you to submit the monthly or yearly turnovers of your business. If you are applying for a start-up loan, your business must be new on the market – less than 2 years old.

What Should I Consider Before Applying For A Business Loan?

The information that you provide in your application documents dictates if your loan application will be successful or not. Whether its payday loans or any other unsecured loan, it’s important to provide the right data.

First, you should ensure that your credit history is impressive. Secondly, your cash flow information should be convincing. In addition, you must demonstrate to the lender that you can repay the business loan.

Final Thoughts

Business loans are an enormous boost to start-ups and existing businesses. The loans enable you to expand your investment and clear operational arrears. If properly utilized, the business loan may be your ticket to business success and financial freedom.

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