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Small Business Loans - An Overview |   |
Whether you're starting a new business, or have been in business for some time, there may well be occasions when additional funding is required to fund the business.
Small Business Loans come in various forms, and are widely available. They can provide a very flexible solution to any type of funding requirement. This article provides a high level overview of the small business loan market.
Commercial Business Loans
Commercial loans are available to most small businesses and start-ups, subject to status. All the main high street bank, and a multitude of other lenders operate in the small business loan market. As with a personal loan, your business will borrow money and repay it over a pre-agreed number of months or years, at a fixed or variable interest rate.
Interest Rates
Business loans are typically available at a fixed or variable rate but capped rate loans are also available. With a fixed-rate loan, you know exactly how much you need to repay for the duration of the loan.
Variable rate loans are typically tied to the Bank of England base rate, so may well fluctuate over time. Obviously, if the BoE lowers interest rates, you will pay less, but if it raises rates, you may end up paying significantly more to borrow money than you may have hoped for.
Some providers now offer business loans with a 'capped' interest rate. This option allows you to benefit from any falls in interest rates but the rate won’t rise above the agreed level for the capped period.
Where to look for a loan
Most banks and building societies offer commercial loans. You should spend time researching the loans available rather than simply going with your current business banking provider. To avoid unauthorised lenders, make sure your potential lender subscribes to the Business Banking Code (PDF).
Things to keep a look out for
Most of us are guilty of signing documents without reading the small print, but when it comes to taking out a small business loan, you should make sure that you are aware of any hidden charges, or potential penalties which may apply. These include an initial fee for taking out the loan, redemption penalties for early settlement of any loan, late payment charges, and other arrangement fees.
You may well secure a loan at a seemingly competitive rate, but "add on" fees may bump the real repayment cost up significantly. Ask any potential lender to disclose all such fees/penalties up front before signing anything.
Compare Small Business Loans
For a more comprehensive guide to small business loans, and to compare small business loans, visit Simply Business.
Further Resources
There are many other ways to find funding, such as through grants, and the Small Firms Loan Guarantee Scheme - here are some links to other useful guides:
- Invoice Financing and Factoring - Cash flow solutions for small businesses.
- Business Grants - An Overview, and a Practical Guide to Business Grants.
- Small Firms Loan Guarantee Scheme - Advice and Application Guide.
- How to Choose a Small Business Bank Account - Overview
Posted March 25, 2008
Small companies applying for the Government’s Enterprise Finance Guarantee (EFG) scheme are being urged to ‘do their homework’ in the face of stiff assessment criteria. [June 24, 2009]
Most small businesses will, at some stage, seek funding or investment - for growth, starting up, or to see them through a transitional period (or a downturn). In this high level article, we look at the main sources of funding that are available. [May 28, 2009]
A guide to business angels - what they are, what they can provide, and how to work out if an outside investor is the right person to seek for your small business. [May 26, 2009]
Businesses left struggling to find working capital or replacement to bank debt can instead turn to the rising prominence of angel investment as a viable alternative. Here are some top tips to help steer them through this sector: [May 6, 2009]
VCs invest money into businesses they believe have potential for significant growth. They get their returns by taking their share of the profits each year, or by getting a significant return on their investment when the business is sold. [April 16, 2009]
The government has announced the launch of the Enterprise Finance Guarantee Scheme (EFG). It aims to help businesses with a turnover of up to £25 million to secure bank loans of up to £1 million. [January 14, 2009]
As traditional sources of business funding have become harder to get hold of over the last year, more and more businesses are turning to alternative sources of finance, including asset based lending. We look at what this type of funding involves. [September 12, 2008]
As late payment problems continue to blight the small business world, here are some golden rules for dealing with debtors during a downturn and ensuring that you keep on top of your cashflow management. [September 9, 2008]
With a 10% increase in business failures in the second quarter of 2008, it has never been more important for small companies to maintain a good credit rating. Article includes essential tips to maintain a good business credit score and a low risk profile. [August 4, 2008]
With credit currently in short supply, here is an overview of the various options open to small businesses looking to raise funds. Small business funding options include bank overdrafts, business loans, asset finance, invoice finance, and other types of investment funding. [July 11, 2008]
When it comes to selling a business, the most important question you need to ask is - how much is it worth? In this article, we look at some of the most commonly used valuation techniques, and how other factors may influence the value of a business at any given time. [June 25, 2008]
Small business loans can provide a very flexible solution to any type of funding requirement. This article provides a high level overview of startup loans and what to look out for. [March 25, 2008]
There are some clear steps you can take before meeting your bank manager that will increase your chances of getting the business loan you need. [August 22, 2007]
Banks have a number of tough rules that you need to know before you approach them for a loan. Here are the secrets behind getting that business bank loan. [August 21, 2007]
The Small Firms Loan Guarantee Scheme is particularly useful for businesses that have been turned down for loans elsewhere, because they don’t have enough assets to secure the loan. [July 16, 2007]
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