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Business Loans: Everything You Need To Know

At some point, every business needs a bit of extra cash in the bank. What better way to fund this than with a business loan?

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. 

 

  • Fixed-rate 
    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.   

 

What Types Of Business Loans Are Available?

Not all business loans are created equal. One may be more suited to your specific business needs than the other.  We've broken down the four main types of business loans to give you a bit more understanding of which is best for you. 

Types of Business Loan
  • Secured Business Loan

    This involves you "securing" an asset, typically a property, against the loan. If you fail to keep up with your repayments, then your asset could be repossessed to cover the cost of the loan. These loans are best suited to asset-heavy businesses with a proven history of trading. 

     

    Secured loans will also typically come with more favourable terms than other loans because you are using an asset as security, making it less of a risk to the lender. 

  • Unsecured Business Loan

    This is the complete opposite of a secured loan, where no assets are needed as security, instead, you will have to provide a personal guarantee.  This means that if your business fails to keep up with repayments, you will personally be responsible for paying back the loan. 

     

    Unsecured interest rates and repayment terms will be far less favourable than with a secured loan and are best suited to fast-growing asset-light businesses. 

  • Working Capital Business Loan

    These are perfect for short-term expenses, and the terms are often for less than 12 months. If you choose to opt for this, make sure you find one with a flexible or bespoke APR. 

  • Short-Term Business Loan

    These loans are best suited to fund unexpected growth opportunities for businesses with ad-hoc payment demands. 

     

    Repayment terms can range anywhere between 3 months and 2 years, and as a result, they will typically come with a higher fixed interest rate.

FAQs

Your Questions Answered

For pretty much anything, so long as it has a business-related purpose, a business loan can fund it. A few ideas of what you could use a business loan to fund are: 

  • Expansion 
  • Purchase inventory or equipment 
  • Covering operational expenses 
  • Marketing and advertising 
  • Refinancing debt
  • Access to large amounts of capital 
  • Lower interest rates compared to other forms of finance like credit cards 
  • Interest payments are tax-deductible 
  • Flexibility 
  • Remain in control of your business 

This will depend on the lender, and if it is allowed, you may have to pay a fee to do so. 

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How much would you like to borrow?
50,000
  10,000   50,000   100,000   150,000   200,000+
Merchant account suppliers
  • Worldpay Limited
  • Take Payments Limited
Our Partners
  • Finbiz Funding Limited t/a Bizcap
  • LDF Operations Limited
  • Lending Box Ltd
  • Monmouth Group Limited
  • Morley Capital Limited trading as Simply Funded
  • Redwood Utilities Limited
  • Rise Funding Limited
  • Swoop Funding Limited
  • TIGER LION FINANCIAL LIMITED
  • United Kaptial Limited trading as Capify
Our Partners
  • CommercialExperts.com
  • Smarter Business Limited
  • Utility Bidder Limited
Our Partners
  • Barclays Bank PLC
  • CommercialExperts.com
  • Fiserv (Europe) Limited
  • Independent Merchant Services Limited
  • Lloyds Bank PLC (trading as Cardnet)
  • Lopay Limited
  • Naudapay Limited
  • ResQ Limited
  • SumUp Payments Limited
  • Take Payments Limited
  • Teya Services Limited
  • The Redwood Group and Associates Limited
  • Tide Platform Limited
  • WorldPay (UK) Limited
Our Products
  • Business Accountancy
  • Business Epos Systems
  • Business Telephone Systems
  • Commercial Waste Collection
  • Digital Marketing
  • Fleet Tracking
  • Invoice Finance
  • Merchant Accounts
  • Website Design
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Business Loans vs. Personal Loans

Business loans are a type of financing that businesses can obtain from traditional banks, online lenders, and credit unions. They can be either a lump-sum payment or a credit line, and in exchange for this funding, the business agrees to repay the money it borrows over time, plus interest and fees. A personal loan is a type of unsecured loan that can be used for a variety of purposes, such as debt consolidation, home improvement, or travel. The repayment terms for personal loans can vary, but they are usually repaid in fixed monthly payments over 12 to 84 months. The Differences Between Personal Loans and Business LoansAs you've read, business and personal loans are two types of loans that individuals can use for different purposes, but what are the main differences? Below you'll see some of the main factors that separate the two types, as well as some things that they have in common. 

Getting a Business Loan to Buy an Existing Business

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, in some cases, they can be used to buy an existing business. Can You Borrow Money to Buy a Business?Yes, you can borrow money to buy a business. It's something many entrepreneurs do each year and it can often prove to be a quicker route to running a successful business.  Starting a business from scratch is a time-consuming process. It comes with numerous risks and challenges, whereas buying a business, though it's not risk-free, can be an easier, quicker and therefore preferable option. The Advantages of Buying an Existing BusinessBuying an existing business can often be a better option than starting one from scratch. The business you're buying is likely to have already established offices or premises and, more importantly, it may even already have an established brand and pre-existing customer base. These things are the result of years of work, and buying a business that has them in place already means you're able to bypass this work.  You'll also bypass many of the fees associated with starting a business, such as paying to get it registered, start-up costs like Wi-Fi, consultancy fees, and stock. All of this could, in the long run, save you money and is almost certain to save you time in the short to medium term. Getting a Business Loan to Buy a BusinessIf you want to buy an already-established business, various financial choices are often available. One option is securing a loan from a bank or building society, as you would for a mortgage. One of the main things that a lender will look at when evaluating your application is the business you are hoping to buy. Its financial track record will play a big part in how much you are able to borrow. If the business is in good financial condition, you will be able to borrow more because the bank will have more confidence in recouping the loan. A business in bad condition will therefore only warrant a smaller loan. Other factors, such as your own financial condition and value of assets will also be taken into account by a lender when they are assessing your borrowing capabilities. Get a Business Loan TodayIf you do decide that a business loan is the best way to finance buying the business you want, we can help. Just answer some basic questions about your finances and, using this information, we will find the most suitable loan provider for you. It's completely free and non-committal, so tap the button to get started. 

Government Business Loans: Your guide

Does the UK Government Offer Business Loans?There are several UK government loans available for business in the UK. At the time of writing this, there are 29 business loan schemes currently on the Government's website aimed at easing access to trustworthy sources of business loans. Some of them are catered to specific business sectors and industries, while others are catered to specific regions and locations. The Government's list may be a good place to start if you or your business is looking for a reliable place to secure a loan. The Government Start-Up LoanAs well as having schemes in place to help businesses find a loan, the UK Government also provides loans to businesses themselves. The Start-Up loan scheme is popular amongst small businesses in the UK. Unlike a traditional business loan, the Start-Up loan is a personal loan to be used for business needs, ranging from £500 to £25,000. They come with a fixed annual interest rate of 6%. Additionally, these loans are unsecured, meaning you don't have to risk any of your assets, and there's no need to find a guarantor to back your application.How Much Money Can You Borrow With a Start-Up Loan?Each owner or partner within a business is eligible to apply for up to £25,000 individually, with the total amount available for a single business being capped at £100,000. Those who are approved for the Start Up Loans program will receive 12 months of complimentary mentoring, which provides valuable guidance and access to exclusive business offers. These added benefits are aimed at increasing the chances of your business succeeding.Before You ApplyAs you can probably guess, there are a few requirements you and your business need to meet to apply for the scheme. To apply for the loan you need to live in the UK and be 18 or older. You also need to have started (or have plans to start) a business in the UK that has been trading for less than three years (36 months). Additionally, applicants will undergo a credit check as part of the application procedure.How to ApplyThe Government understands that you may not have a lot of spare cash lying around as you work to get your business up and running, that's why the application process doesn't require any fees. There's also a choice to repay the loan anytime over five years, and there are no penalties or fees for early repayment.