What Is a Business Loan?
A business loan is like any other loan, but one that is used specifically for business-related purposes. It's often one of the first things businesses consider when they want to raise capital.
Loans can be taken out to pay for exciting expansion plans, to buy new stock or specialised equipment, or to help your cash flow.
Whatever your needs, a business loan could help.
Read on to find out everything you need to know about how they work, what types are available, and how to get one for your business.
How Do Business Loans Work?
Like most loans, there are two key components you need to be aware of.
The Repayment Window
This is how long you will have to pay back the amount you have borrowed plus the accrued interest.
The longer you have to pay back the loan, the cheaper your monthly repayments will be. Although this seems like a great option at first, it will end up costing you more in the long run through interest payments.
The Interest Rate
Also known as the "Annual Percentage Rate" (APR), this is how much extra you will have to pay back on top of the original loan amount. This is essentially how loan companies make their money.
Your interest rate will depend on a few things, but it can be boiled down to how much of a risk you are to the lender.
If you have good credit and secure an asset against your loan, you will find that you have much better terms than someone with poor credit and no security.
Interest rates also come in two different types.
Where the APR remains fixed throughout your repayment term, So if you agree to a 5% APR it will be the same from the day you take out the loan until your final repayment.
- Floating rate
The APR will change, or 'float' throughout the repayment window and will often be based on the Bank of England base rates.
To find out what your monthly repayments could be in principle, visit our free business loan calculator.