In our latest article, we will run through everything that you need to know about small business loans including how to apply for one, what options are the best, and what affects the interest rate on a small business loan.
Accelerated Finance has access to over 50 specialist lenders and can provide competitive terms within 48 hours.
The Following Topics Are Covered
What Is A Small Business Loan?
Small businesses can finance their daily operating expenses with the help of a small business loan. The loan is frequently secured against an asset or unsecured and is offered by a lender or high street bank.
Startups and small businesses can get the financial boost they need from small business loans. They can be used for a variety of different use cases, including controlling cash flow, expanding the business, and allowing businesses to maintain lower costs.
A repayment plan is a condition of the lender's terms of agreement when business owners borrow money from them. After that, the funds are repaid with interest over a predetermined repayment period in scheduled monthly payments. There are two main types of loans:
• Unsecured business loans
• Secured business loans
What Is An Unsecured Business Loan?
Business owners can borrow money using unsecured business loans without providing the lender with valuable business assets as security. Small businesses that might not have assets to use as collateral for unpaid loan repayments frequently use this as a form of funding.
Small unsecured business loans frequently need a director's personal guarantee and have higher interest rates. In the event that the company defaults on a payment, the business owner is personally obligated to pay the loan repayments under this guarantee.
We provide unsecured funding products for SME Loans. Please be aware that the lender you are matched with may require you to sign a personal guarantee before you can apply for the loan.
What Is A Secured Business Loan?
Small businesses can borrow money from secured business loans under the condition that they provide "security" in the event that the loan is not repaid. Business assets like property and equipment are included in this security. If the repayment is not made, the lender will seize these assets.
Small businesses with access to valuable assets that they can use as collateral benefit the most from these loans. The lender will take the proposed asset into account when applying for a secured loan and may request that it be valued.
Once the asset, loan amount, and repayment structure have been agreed on, you will then give the lender a 'charge' over the item. This ultimately means that the lender will hold the legal authority of the selected item if your business defaults and does not manage to pay back the loan.
Hard assets examples include Vehicles, Heavy Machinery or Property. Softer Assets include Office Equipment, IT Equipment, and Stock.
What Are The Main Uses For Small Business Loans?
There are many different uses for a small business loan. This kind of loan can help you increase your working capital or make essential business purchases because it is typically a short-term loan. It is not advisable to use a small business loan to settle any current business debts
We give below a few use cases for small business loans.
If your small business is flourishing, you might need to expand your workforce, relocate to a larger location, or do both. Expansion can be costly and you might not have the necessary funds. Loans for businesses can aid in growth
You might be considering how to increase efficiency and productivity of your company's daily operations. You can finance the specialist equipment you'll need to accomplish this with the help of loans
To develop into an industry leader, small businesses must be competitive. A good investment that will undoubtedly produce better long-term results for your company is training and developing your small workforce.
Promotion is essential for small businesses to gain recognition and successfully progress. It can be difficult to source new customers and clients, but a business loan effectively allows you to invest in the advertising required to achieve this.
What Are The Pros and Cons of Secured Loans
Secured business loans typically allow you to borrow much more money, which is advantageous for long-term investments.
In general, secured business loans are simpler to get, especially if the lender views you as a risk. This is due to the lender's additional security, which they can claim as collateral if something goes wrong and you are unable to make payments.
A secured business loan requires more time to apply for and set up than other small business financing options. It typically takes longer for the loan to be approved because there is an asset involved, so you must organize a valuation and/ or inspection.
The main drawback of secured business loans is that defaulted repayments run the risk of losing your asset. Repayment should not be a problem, though, if you believe in the strategies you are using to expand your company.
What Are The Pros and Cons of Unsecured Loans
Compared to secured business loans, the application process for unsecured loans is quicker and easier. You can access the money in a matter of days because secured loans do not require you to go through any additional procedures.
You are not at risk of losing a priceless business or personal asset if you have trouble making repayments because the loan is unsecured.
If you do not make payments on time, it will be more difficult for lenders to get your unsecured loan back. Because of this, unsecured loans typically have much higher interest rates than secured loans.
If you're thinking about getting a loan for the short term, unsecured loans work well. You can only borrow a small amount of money for your business, so it might be wiser for you to take out secured loans if you need to borrow more money.
Can I Still Obtain Business Loan If The Business Has Been Affected By Covid- 19?
Yes, we can now connect candidates to lenders who have the British Business Bank's approval to offer a recovery loan program to UK companies affected by the coronavirus. Businesses can choose between term loans, asset financing, overdrafts, and invoice financing thanks to the program.
What Is The Eligibility Criteria For A Small Business Loan?
In the UK, there are more than 5.5 million SMEs according to Gov.UK
According to research, small businesses frequently hesitate to request funding out of concern that they will be turned down.
More limited businesses than ever before now have access to finance as a result of the alternative lending market's enormous growth. Accelerated Finance has access to this market and
There are some basic eligibility requirements, though we try to assist as many businesses as possible in receiving the funding they require:
Formally registered with Companies House as a business.
For at least six months, you have been actively trading.
Your business has a minimum monthly turnover of £5,000
You as the business owner are over the age of 18
What Are The Questions To Ask Before Applying For A Small Business Loan?
When it comes to business, there is no one size fits all. Every business is different, so you need to ensure that you have assessed the most practical method of borrowing for your company when choosing your business loan.
Before considering any option, you should ask the following questions:
What is the total amount you need to borrow?
How long do you need the business loan?
What is the time length to pay back the loan?
How long has the business been trading?
What is the current state of the business?
Is a short-term or longer-term loan better?
What is the current business credit score?
Are there any assets that the business can offer?
What are the current outstanding debts?
Is there a backup plan if repayments can be met?
What Are The Factors That Affect The Interest Rate On A Small Business Loan?
Lenders will evaluate your business profile in terms of risk factors, taking a variety of factors into account, when it comes to small business loans. Interest rates are based on:
How long have you been running your company?
Your credit history
Verified business history
How much revenue and net profit does your company make?
Future initiatives and business plans
What Are The Rates and Fees For Small Business Loans?
Depending on the lender and the kind of funding product they provide, small business loan rates and fees can vary greatly. Your business activity, such as performance, industry sector, and credit history, may also have an impact on the rates.
Interest rates can change at any time during the loan term, despite the fact that they are typically fixed. You will be informed of the loan's cost at the outset when all fees, charges, and repayment terms are made clear and agreed upon.
You can feel secure with the selection of lenders and competitive products we have on offer. Even if a company has been operating for a short time (6 months), we have access to lenders that can provide flexible payment terms.
It's important to remember that if you don't pay off your small business loan in time or default on a repayment, your credit score might suffer making it harder for you to obtain credit in the future
Do Small Business Loans Require A Personal Guarantee?
You'll frequently need to be ready to sign a personal guarantee when applying for small business loans. This legally binding guarantee essentially acknowledges that, in the event that your company is unable to make payments, you, the business owner or company director, will assume personal responsibility for doing so.
When looking for an unsecured loan product or when the lender wants additional assurance before allowing you to borrow, personal guarantees are typically more prevalent.
Can I Repay My Business Loan Early?
The majority of the lenders we work with do not impose any additional fees for paying off your business loan in advance.
Why Choose Accelerated Finance To Arrange A Small Business Loan?
Small businesses can access financing through Accelerated Finance in a straightforward, efficient, and responsible manner. Speed, adaptability, and excellent customer service are our main priorities.
Obtain a free no obligation quote right away, and your personal account manager will walk you through the procedure.
Disclaimer This article is intended to provide a general understanding of the topic. The contents should not be treated as advice. Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders.