What is a Business Loan? Understanding Business Loans
Introduction
Taking out a business loan means borrowing money for business purposes. The type of business loan you apply for is likely to depend on your business circumstances and why you need the money. If you’re thinking of applying, use our six tips for a successful small business loan application to boost your chances.
When to get a Business Loan
Whether you can get approved for a business loan depends on the criteria of the lender. There’s some funding available for businesses that are just starting out (see the sections on Start Up Loans and Virgin’s early-stage business loan below). For other loans, you’ll need to have been running your business for a certain amount of time. Contact the lender if you’re not sure.
Understanding Business Loans
There are several decisions you need to make when you’re looking for a business loan, and lots of new information to understand. Below are some of the key points to consider.
Fixed Rate vs. Variable Business Loan
If you have a loan with a variable interest rate, the rate can go up and down, whereas a loan with a fixed rate means your repayments tend to be predictable. Most small business loans are fixed rate loans.
Unsecured vs. Secured Business Loan
A secured loan is backed by an asset (property, machinery, or a vehicle, for example), which means the lender can claim ownership of the asset if the loan isn’t repaid. Unsecured business loans aren’t backed by an asset, but the lender may ask for a ‘director’s guarantee’ instead, which means they may go after the director for repayment if the loan isn’t paid off. Whether you’re offered a secured or unsecured loan may depend on how much money you want to borrow. Large loans will usually need to be secured, whereas lower amounts are often unsecured. Unsecured loans may have higher interest rates, as they’re riskier for the lender.
Long Term vs. Short Term Business Loan
You’ll also need to make a decision about your loan term, which is the length of time that you have the loan for. This is likely to depend on what you need the loan for, and how quickly you think you’ll be able to repay it. Different lenders have different minimum and maximum loan terms, and the term you’re offered may depend on your circumstances.
Business Loan Comparison
Compare business loans and you’ll soon work out the categories and types of funding available, from government-backed Start Up Loans, to loans from peer-to-peer platforms, to options from high street and big-brand banks. We’ve compared a few of the business loans available in 2023, looking at factors like loan amounts, eligibility criteria, minimum business loan interest rates, and application process. It’s important to understand this is only a guide – the loan you’re actually offered will depend on your circumstances and the details of your business.
Challenges for Businesses Seeking Funding
Almost a quarter (23 per cent) of businesses are seeking finance through a bank loan, according to our SME Insights Report. Our data shows 33 per cent of businesses need a cash injection of up to £20,000, while 25 per cent want to raise between £50,000 and £100,000. Despite the high proportion of businesses that are looking for funding, it can be difficult to get. A quarter of businesses said a lack of funds and access to credit is a key concern for 2023. Acknowledging the problem, the Treasury Committee has launched an inquiry into funding for small and medium-sized businesses (SMEs). The call for evidence, which closes on 13 August, is asking businesses to share their finance challenges as well as the impact of coronavirus loan schemes.
Summary
Taking out a business loan is an important step for many businesses looking to grow and expand. It allows businesses to access necessary funds to support their operations, whether it be for start-up costs, cash flow issues, or business expansion. Business loans come in different types, each with their own advantages and considerations. Fixed rate loans provide predictability in repayments, while variable rate loans can fluctuate based on market conditions. Secured loans require collateral for approval, whereas unsecured loans do not, but may come with higher interest rates. The loan term also plays a role in determining repayments and is based on the specific needs of the business.
However, obtaining a business loan can be challenging, as many businesses face difficulties in accessing funding due to lack of funds and limited credit access. This has prompted inquiries and initiatives to address the issue and support small and medium-sized businesses. It’s important for businesses to explore available options and compare business loans to find the best fit for their needs. Understanding the different criteria, interest rates, and application processes can help businesses make informed decisions and increase their chances of loan approval.
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What is a business loan?
Taking out a business loan means borrowing money for business purposes. The type of business loan you apply for is likely to depend on your business circumstances and why you need the money.
If you’re thinking of applying, use our six tips for a successful small business loan application to boost your chances.
You can apply for a start-up loan to help get your business off the ground, a short-term loan to help ease cash flow issues, or a long-term loan to fund the expansion of your business, for example.
Challenges for businesses seeking funding
Almost a quarter (23 per cent) of businesses are seeking finance through a bank loan, according to our SME Insights Report.
Our data shows 33 per cent of businesses need a cash injection of up to £20,000, while 25 per cent want to raise between £50,000 and £100,000.
Despite the high proportion of businesses that are looking for funding, it can be difficult to get. A quarter of businesses said a lack of funds and access to credit is a key concern for 2023.
Acknowledging the problem, the Treasury Committee has launched an inquiry into funding for small and medium-sized businesses (SMEs). The call for evidence, which closes on 13 August, is asking businesses to share their finance challenges as well as the impact of coronavirus loan schemes.
When to get a business loan
Whether you can get approved for a business loan depends on the criteria of the lender. There’s some funding available for businesses that are just starting out (see the sections on Start Up Loans and Virgin’s early-stage business loan below).
For other loans, you’ll need to have been running your business for a certain amount of time. Contact the lender if you’re not sure.
Understanding business loans
There are several decisions you need to make when you’re looking for a business loan, and lots of new information to understand. Below are some of the key points to consider.
Fixed rate vs. variable business loan
If you have a loan with a variable interest rate, the rate can go up and down, whereas a loan with a fixed rate means your repayments tend to be predictable. Most small business loans are fixed rate loans.
Unsecured vs. secured business loan
A secured loan is backed by an asset (property, machinery, or a vehicle, for example), which means the lender can claim ownership of the asset if the loan isn’t repaid. Unsecured business loans aren’t backed by an asset, but the lender may ask for a ‘director’s guarantee’ instead, which means they may go after the director for repayment if the loan isn’t paid off.
Whether you’re offered a secured or unsecured loan may depend on how much money you want to borrow. Large loans will usually need to be secured, whereas lower amounts are often unsecured. Unsecured loans may have higher interest rates, as they’re riskier for the lender.
Long term vs. short term business loan
You’ll also need to make a decision about your loan term, which is the length of time that you have the loan for. This is likely to depend on what you need the loan for, and how quickly you think you’ll be able to repay it. Different lenders have different minimum and maximum loan terms, and the term you’re offered may depend on your circumstances.
Business loan comparison
Compare business loans and you’ll soon work out the categories and types of funding available, from government-backed Start Up Loans, to loans from peer-to-peer platforms, to options from high street and big-brand banks.
We’ve compared a few of the business loans available in 2023, looking at factors like loan amounts, eligibility criteria, minimum business loan interest rates, and application process.
It’s important to understand this is only a guide – the loan you’re actually offered will depend on your circumstances and the details of your business.
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