Like traditional loans, business loans are a lump sum of money lent to the borrower for a specified period of time and the borrower will have to pay the loan back with interest.
The Role Of Business Loans
Business loans can help out businesses in a range of situations. Startup loans are the most common type of business loans that you will come across. As hinted by their name, these loans are designed to lend businesses the money needed to get their new idea off the ground. Indeed, setting up a new business is expensive! While it is possible to borrow money form a venture capitalist, you will not be sacrificing a share of your business if you choose a business loan instead. In the long run, having full control of your business can offset the interest you are charged on your loan.
However, business loans are not just for new businesses. Short-term business loans can be the perfect way to deal with cash flow problems during difficult financial times.
Got expansion plans or want to invest in some capital equipment such as new computers or machinery? A business loan can help here. A business loan can help you out here by giving you the capital to improve your business and make more profit.
Government Start Up Loans
If you are at least 18 years old and live in the UK you may be eligible for the government’s Start Up Loan Scheme. This is a special schemed funded by the government which gives budding entrepreneurs an unsecured loan which has a low fixed rate of interest. The loan must be paid back in 5 years.
In addition, the scheme will assign a delivery partner to your company. This delivery partner will help you put together a business plan and offer business mentoring.
Potential Pitfalls of Business Loans
One of the major disadvantages associated with business loans is that they are not a very flexible source of capital. Indeed, if you find that you are able to repay your loan early, you are likely to be hit with an additional charge.
If you choose to take out a secured loan, you could lose valuable business assets should you find your business unable to meet payments.
Variable interest rates can make it hard for you to plan your finances; this could lead to potential cash flow problems should your estimated interest amount be off the mark.
Factors to Take into Consideration
After evaluating other sources of finance at your disposals you find that a business loan is the best solution, there are a number of factors that you will need to take into account.
You will need to check your eligibility for a business loan. Some lenders will only lend to those who have been trading at least 2 years while other lenders specialise in lending to start-up businesses. In addition, it is not unheard of lenders to set minimum turnover limits.
When comparing the different business loan options out there, you will need to think about how much interest you will need to pay on the sum borrowed. Sometimes it is possible to reduce your rate of interest if you offer some collateral as security. However, you will have to bear in mind that you may lose this collateral if you are not able to keep up with the payments.
As with any financial product, it is vital that you are fully aware of the terms and conditions of the loan - this will avoid any nasty surprises down the line. For example will your lender penalise you if you decide that you want to pay back your loan early?
Comparison Of Top Business Loan Providers
|Provider||Minimum Term||Maximum Term||Maximum Loan|
|NatWest||1 Year||10 Years||£25,000|
|Everline||1 Month||18 Months||£150,000|
|Yes Growth||1 Month||15 Months||£250,000|
|Amigo||1 Year||5 Years||£5,000|