Minimum turnover is £100,000 with 1 year trading
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When you're setting up or growing a business, you may need loan finance to help with the costs.
A business loan is different from a personal loan in that you will need to provide information about your business, its turnover and its profit.
Business loans can be short term or long term, but all involve borrowing a lump sum and then paying a set amount of interest each month until the debt is cleared.
Different loans are available for different circumstances, so it helps to have a clear idea of exactly what you need the money for before you compare business finance loans.
Business finance is a catch-all term that covers a range of funding options open to businesses of all sizes, including overdrafts, loans, commercial mortgages, business credit cards and everything in between.
Like any form of borrowing, business finance comes with costs. Therefore, it's important to think carefully about whether you need a business loan, or whether you could find alternative ways to start up your business or fund your business expansion.
If you only need to borrow a small amount, for example to buy computer equipment for your business start-up, you may find a business bank account overdraft or credit card borrowing are more flexible ways of borrowing money for your business. However, check terms and rates carefully, or it could cost you more to borrow.
However, if you need a lot of money for expansion, or you need to hire staff for your start-up, you may end up needing to take out a business loan.
Bear in mind that you need to have a plan for repaying the loan, and your business also needs to have a good credit rating. The better your business credit rating, the more attractive the loan rate you’re likely to be approved for.
Put simply, there are two types of loan – secured and unsecured.
Secured borrowing means you are borrowing against an asset – this might be a business premises, or even your own house if you are a very small business, although this is a risky option.
Your property could be repossessed if you do not keep up with repayments on a secured loan. Therefore, although interest rates are generally lower on secured loans, you're taking a greater share of the risk.
With an unsecured loan, the money isn't borrowed against an asset. The rate you get will depend on your business and personal credit rating along with other factors.
The lender is taking a greater share of the risk, as there is no asset they can sell to get their money back if you can’t repay the loan, so the interest rate on this type of borrowing is likely to be higher.
Every business needs money to get off the ground, but it can be difficult to find funding when you’re a start-up, as lenders have no way of knowing how your business handles credit or even if it’s viable.
In this instance, it’s worth looking into the government’s Start Up Loan scheme, which provides access to unsecured personal loans of between £500 and £25,000. The scheme also offers free support and guidance to help write your business plan. If your application is successful, you’ll also be eligible for up to 12 months of free mentoring.
Asset finance – This type of finance allows you to spread the cost of essential assets you need to operate, such as equipment machinery and vehicles.
Working capital loans - This is a type of short-term loan used to help with cashflow and other day-to-day running costs.
Bridging loans - Most often used in property purchases and development projects, this short-term funding option can cover the costs while you wait for funds to clear from the sale of property or an asset.
Commercial mortgages – This is a long-term loan used to help fund the purchase of a business property.
Peer-to-peer loans – Also known as P2P loans, this is when your business borrows money from individuals or other businesses instead of a bank.
Invoice finance - Often used to help with cashflow, this is when you use your unpaid invoices as security for funding. A lender may buy your invoices for a percentage of their total value or it can work more like an overdraft.
If you already have a business bank account with a bank or building society, it may offer you a business loan. However, this might not necessarily be the cheapest option. By shopping around, you could find a better deal from an online bank or alternative lender.
Uswitch has partnered with Think Business Loans to provide our business finance comparison service. Think is part of Bionic, the UK’s leading business switching service. We’ll work with high street banks, challenger banks and alternative lenders to match you with the right business finance solution.
Before you start shopping around for a business loan it helps to be clear about your needs:
Why you need to borrow the money
How much you need to borrow
How long you will need to repay the loan
How much you can afford in repayments
What type of business loan you will need