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Your Business Loan Questions Answered
We've created a list of your most common questions about business loans. All you want to know, is right here on this page.
1. Can I get a loan for a new business?
Yes. Many small businesses apply for a loan every year, with lenders offering several different types of ways to borrow money. Different lenders offer different rates of interest to different businesses in different industries; each of these factors influences the kind of deal you'll be offered. It's important to check what kind of deal you can get, so comparing providers is a good place to start.
The UK Government also offers small businesses a loan scheme, which you can read more about further down this page.
2. How do I apply for a business loan?
Applying for a business loan is relatively simple; you just need to find the right provider with the right deal and fill in a form (often this is done online). After the application is sent, your chosen lender will assess it and get in touch with you usually in a few days.
Before you apply for a business loan, however, there are some steps you should take. These steps include checking your business credit report, making sure your finances are in order, and carefully planning how much you want to borrow and how you're going to pay it back.
3. Are business loans tax deductible?
No. Payments for business loans do not qualify for tax deductions. When a business takes out a loan, the received amount is not considered taxable income, this means repaying the loan's principal does not permit a deduction.
There is still potential for certain deductions, however. In the majority of scenarios, the interest paid on a business loan is eligible for a tax deduction. The interest part of your loan can often be written off as a business expense.
4. Does a business loan affect your credit score?
Yes. Opting for a business loan has the potential to impact your personal credit score. As time progresses, your business may accumulate liabilities that stem from your loan. Things like overdrafts, credit lines, and business credit cards can cause this. If you are the individual who took out the loan, you likely bear the responsibility for repaying it.
You must assess your means of repaying any loan that you take out, as it could hurt your credit score, and therefore your ability to borrow money in the future. As a general rule, you should only ever borrow an amount that you are sure you can pay back.
5. What are the risks of business loans?
Excessive business loan debt could potentially lead to a decline in your personal or business credit score, especially if consistent repayments cannot be upheld. Accumulation debt increases the risk of your business becoming financially strained, which heightens the likelihood of overlooking payments or facing defaults.
These scenarios are obviously bad for your business and need to be avoided. This is why the risks need to be assessed properly before you decide to take out a loan. Accumulating debt is never advisable and you should have a robust repayment plan in place to ensure you don't fall behind on payments.
6. Can you get a business loan on bad credit?
Yes. You can get a business loan with a poor credit score. The process for doing so is slightly different from if you had a healthier score, but the possibility of getting one remains. It mainly rests on the strength of your business plan and your capacity to substantiate the stability of your cash flow.
Should your business be inclined to provide business assets as collateral, a secured business loan could be something to consider. Banks want to be sure that they can recoup any investment they make, so offering up your business assets can be a good incentive for them to view you as a viable borrower.
7. What are the main benefits of a business loan?
Entrepreneurs have the option to request various loan types (ranging from long-term to short-term) depending on their specific needs. The most obvious benefit to a business loan is the ability it gives your business to expand financially.
Applicants are also not obligated to present collateral when seeking a business loan and the process for acquiring a business loan is often straightforward, which are two of the other benefits of taking out a loan.
8. How much can you borrow with a government business loan?
It depends on the type of loan you want. If you're a new business and apply for a Government Start Up Loan you can borrow from £500 to £25,000. In this case, the loan is categorised as personal rather than strictly a business loan.
As a result, in cases where a business comprises multiple partners, each partner has the opportunity to individually seek a loan amount of up to £25,000. It's important to highlight that the highest sum attainable for a single business entity is £100,000.
9. Can you take out more than one business loan?
Yes, a business can take out more than one loan. Your business may want to do this to cover an emergency cost, or to ensure the continuity of your trading in the short term.
As always, it's important to make sure you can pay back any money you borrow, and take the time to assess the risks associated with accumulating debt.
10. Are business loans fixed or variable?
Both. Business loans are typically categorised into two main types of interest rates: fixed and variable. A fixed rate involves a predetermined interest rate that remains constant throughout the entirety of the loan's lifespan.
Fixed-rate loans provide borrowers with a sense of stability and predictability in their repayment plan, as the interest costs remain unaffected by fluctuations in financial markets. This can be particularly advantageous when crafting a budget and ensuring financial consistency over the long term.
11. Does the UK Government offer business loans?
As 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. Read more about the Start-Up loan scheme.
12. Are business loans secured?
Sometimes, yes. Business loans are commonly secured by assets such as property, equipment, machinery, or land. Any valuable assets possessed by either you or your business can also be considered collateral.
Sometimes a business loan can be unsecured, which means there are no assets or property offered as collateral. The type of loan you take out will determine this. There are advantages to both unsecured and secured loans and it's important to know how each of them is likely to work for you.
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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.