A business loan is a sum of money between £1,000 and £3,000,000 that your company can take out for a variety of different reasons. The purpose of this blog is to help you understand exactly what a business loan is and whether it’s right for your business.
What are Business Loans used for?
In times like this, with many businesses struggling to stay afloat, you could find that a business loan can help to take the pressure from payments such as:
- Buying new equipment related to your company
- Bringing in new staff and paying for their wages
- Expanding your business
- Moving to a new location
- Paying off any outstanding debts
What makes you eligible for a business loan?
For obvious reasons, lenders don’t tend to hand out money too freely. A lender needs to be sure that you can pay back what they lend, so there are certain criteria that must be met in order to receive a loan, including, but not limited to:
- Being VAT registered. It is not always a must; however, it is unusual for a lender not to ask.
- A minimum monthly turnover/annual revenue.
- 2 years of filed accounts.
- Bank statements.
These are not always requirements; however, it is good to check the stipulations that could be involved with a loan before you are rejected for not meeting their set criteria.
Types of business loans
There are many types of business loans out there, some will be better suited to your business than others. When deciding on a business loan, we always recommend working with a professional.
You can get a short-term loan for small costs such as buying some new equipment – or you could get a long-term loan for larger projects such as expanding your business.
There are also loans specifically aimed at small businesses, such as ‘Government Start-Up’ loans. These loans allow budding businesses to borrow between £500 and £25,000 to get up and running. It could cover costs such as paying for your location and/or staff wages, with the loan being repayable for up to 5 years.
‘Bad credit’ loans are aimed at those who have struggled to maintain a good credit score in their business, for one reason or another. Although they are still helpful for a business, they are unlikely to be the best deal as many lenders may consider it risky to hand a loan to a company with a poor credit score.
Secured loans require you to add an asset (anything of value to the company) so that if you cannot pay the loan back, the lender will seize this asset to make the money back that they have lost. This could include land, property, stock, etc. Another type of secure loan is a director’s guarantee, where if the company cannot pay the loan back it becomes the liability of the Director. On the other hand, unsecured loans do not require an asset.
Again, there are many types of loans – different Lenders could have different rules on their own types of loans – these are just some examples. We can help you to find the best loan possible based on your company and its requirements. For a free, informal chat please feel free to contact us.
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