A business growth loan is a type of finance that helps businesses invest and expand.
Growth loans are often used to purchase new equipment or stock, hire staff or undertake a marketing campaign to take the business to the next level. Growth loans can also support expansion into new markets beyond the UK.
What is a business growth loan?
A business growth loan is specifically designed to support business investment, a growth loan will be based on a business’s targets and aims.
Ordinarily, a company looking for a growth loan will be established and have been trading for at least two years as a minimum. A lender will make a decision by considering potential future revenue and the likelihood your business will be profitable.
A strong business plan is key to securing funding for a growth loan. It is important to give a potential lender as much detail as possible showing how funds will be invested to develop the business, and ultimately enable the loan to be repaid.
How much can my company borrow?
The amount a business can borrow will vary depending on the growth plans and whether the business loan will be secured or unsecured. For example, a company may be looking to upgrade machinery and equipment with a modest investment or it may require a million pounds to buy a new warehouse.
If a loan is secured against other assets, such as valuable equipment or property, then the amount a business can borrow will be greater than a loan with no security.
Are loans tax deductible?
Tax relief can be a complex area and so make sure to consult a financial specialist if you are looking to reduce your tax liabilities by using finance. For tax purposes, a loan will be split into two different parts, and only one will be eligible for tax relief, here we explain how tax is applied.
Principal payments
If you finance an asset through a loan, you will repay the loan itself, known as a principal payment, and also interest on the loan. UK businesses cannot claim tax relief on a principal payment and this is because it is viewed as a ‘capital expenditure by HMRC.’ A capital expenditure is seen as something that improves the long term outlook of a business and gaining assets such as company vehicles, new equipment or machinery count in this category.
Interest payments
Interest payments are tax deductible and so tax relief can be applied to this portion of a loan. It is important to demonstrate clearly what your interest costs are and this can be shown by the lender in a yearly statement.
Capital allowances
Capital allowances are a type of tax relief for businesses and in some circumstances HMRC may allow you to write off a portion of the cost of an asset against taxable profits each year. Over time your asset will depreciate in value and a capital allowance allows this to be recognised through the tax system on a yearly basis.
The amount you can claim against capital allowance will vary depending on the type of asset you are claiming against, the original cost, and its state of repair.
Why choose ABC Finance for a business loan?
Using an expert broker, such as ABC Finance, means you will have access to a wide panel of lenders that specialise in business growth loans.
There are very many options available for UK businesses, however, working through the products available and evaluating what will suit your circumstances best can take a lot of time.
Our aim is to save you money by finding you the best deal using our knowledge of the markets and to take the stress out of finance so you can concentrate on your business.
We offer competitive interest rates, flexible terms, and a team of dedicated professionals who understand the unique challenges and opportunities of growth financing. Furthermore, we’ve helped over 30,000 businesses find a loan – our Trustpilot scores and reviews demonstrate how happy our customers are with our service.
ABC Finance business has been supporting businesses since 2000 and is regulated by the Financial Conduct Authority.
Will my company qualify for this type of business funding?
ABC works with a specialist lending panel, and it’s likely we can match your business with a financial solution that suits your circumstances.
Growth loans are based on the potential of a business, if you can demonstrate a strong income, or predicted income it is likely you will qualify.
It’s a good idea to have a clear business plan showing detailed costs and how money will be used to invest in the business. This information will support a loan application and give the lender confidence.
What can business expansion loans be used for?
Types of business loans we can source for UK businesses. ABC is a specialist broker that has over twenty years of experience matching businesses to lenders. There are many different types of business loans depending on your business requirements:
Revolving line of credit
This is a flexible financing option where businesses can borrow, repay, and re-borrow up to a pre-approved limit as and when they need it.This type of debt facility is commonly left open by lenders as long as the account is managed well.
Many businesses find revolving credit useful as once it is set up there is no need to seek approval to use funding as opposed to loans that need to be applied for separately each time they are required.
Merchant Cash Advance (MCA)
A Merchant Cash Advance (MCA) is a form of credit, however it is only available to businesses that accept debit and credit card payments. Finance is provided in exchange for a percentage of credit and debit card sales revenue. It should be noted that there may also be additional fees to pay when entering into an MCA agreement.
Invoice finance and factoring
Invoice financing and factoring allows you to use your outstanding invoices to secure financing. Factoring is where a lender will pay you directly and take ownership of the invoices, they will collect the payment and keep the payment. With invoice factoring the lender will take a fee for providing the service or a percentage of the invoice amounts.
Invoice discounting is part of the invoice finance range of options and this is where the buyer pays promptly for a discount on goods or services.
Invoice financing can help a business maintain cash flow if payments are outstanding for a long time and money is required urgently.
Short term business loans
Short term financing is designed for businesses with an immediate need for funds. Typically a short-term loan will range from three to 18 months, although some lenders may offer repayment periods up to two years in duration. Short term loans come in two forms, secured against collateral or unsecured. The latter will only usually be offered at a higher interest rate.
Business cash-flow loans
Business cash-flow loans are used to cover short term finance needs, a business cash flow loan is an unsecured loan. The key feature of this type of finance arrangements is that they are not based on your current assets such as property, equipment or inventory, they are based on future revenue and the likelihood your business will be profitable.
Payroll loans
Payroll loans are a form of short term finance designed to cover wage bills when a business has temporary cash flow issues. This type of loan is especially useful for seasonal businesses that have peaks and dips in finances, or have money tied up in stock and investments that are not easily accessible.
A payroll loan covers wage and benefits payments for employees in the absence of the business cash flow to meet the payments. Payroll loans are provided by non-traditional niche lenders, rather than traditional lenders such as banks.
Asset financing
Asset financing is used for short-term working capital and can be based on monies due to the business or assets – this is sometimes known as ‘warehouse financing.’
Business credit cards
Business credit cards play a pivotal role in managing a company’s finances. They are available to businesses of varying sizes, and can be used to effectively differentiate personal expenditures from business-related costs.
Although business credit cards operate similarly to regular credit cards, there are some notable differences. The most notable difference is that the borrowing limit on a business credit card is generally higher than a standard credit card, as it is based on personal income combined with the business’s revenue.
Business overdraft
A business overdraft is short-term cash injection to a business bank account. If approved by your lender, the required overdraft limit can be increased or decreased to suit your business needs. Business overdrafts differ from a loan in that interest is only charged on the amount by which the business is overdrawn. The overdraft can be repaid as your income allows, but it is worth remembering that your bank may demand repayment at any time. The lender may also charge a fee for the overdraft.
Corporation tax loans
Taking a loan specifically to pay corporation tax can help manage cash flow by spreading payments over a longer term whilst meeting HMRC liabilities and avoiding late payment fees.
There are many specialist lenders offering tax loans that can pay your bill upfront and then spread the payments over time from three to 18 months, giving you the flexibility to be able to manage your cash flow.
An advantage of taking a corporation tax loan is that it can actually lower your tax liabilities and the amount you will owe HMRC in the future. Interest on a loan that is raised for business purposes can be offset against future corporation tax payments.
Truck and van finance
Truck and van finance are loans that cover the lease or cost of a vehicle; it is a type of asset finance that is seen as lower risk by a lender as the loan is secured against the truck meaning if the loan defaults the lender will become the owner of the vehicle.
Frequently asked questions about business growth loans
How quickly will I receive my finance?
It depends on the type of loan arrangement, however, in many cases funds can be transferred a business within a day. Longer term loans secured on collateral such as stock or property typically take longer to arrange, and in some instances this can take several weeks. For a management buy out the timescales are considerably longer as these are complex funding arrangements.
Can I qualify for this type of loan if I have bad credit?
ABC Finance requires an initial credit check to establish the credit rating of your business, this can easily be done online. Once we understand your situation we work with a wide panel of lenders to match you with a loan and can help companies obtain finance in most circumstances.
Poor credit may not prevent your business from obtaining a growth loan and there are many different options available, including providing a personal guarantee for the loan or using assets to secure the loan.
It should be noted, however, that the interest rates on loans may be higher for businesses with bad credit.
Over time taking a loan can actually improve the credit rating of a business.
As with many forms of business finance, if a loan is taken for a specific purpose and paid off within the specified terms of the agreement then this can improve the business’s financial rating in the eyes of lenders.
Contact ABC regulated by the Financial Conduct Authority for a callback and discussion about your needs. With twenty years of experience in trade finance and a wide panel of lenders, we focus on getting you the right solution for your business and saving you money.
What documents will I have to provide?
To apply for a business growth loan, the business will need to be UK based and have been trading for at least two years. A range of documents will be required although lender requirements will vary. In most cases you will need to show the following paperwork:
- Proof of company incorporation.
- Bank statements.
- VAT returns.
- Inventories.
- Business plans.
What is the difference between secured and unsecured company expansion lending?
Selecting the right loan for your needs and the stage your business is at is important. If growth plans are modest then a smaller, unsecured loan might suit; however, for substantial and longer-term expansion plans lenders are likely to require security in the form of an asset.
Here we look at the differences between secured and unsecured loans:
Unsecured business loans
Unsecured loans are a type of credit that isn’t based on assets such as property or stock. Lenders will assess the creditworthiness of a business and the likelihood that they will be able to pay back the loan. Unsecured loans are often shorter term arrangements.
This type of loan is considered to be higher risk as the lender does not have certainty the payments could be met, or that they will receive their money if the business defaults on the arrangement. Unsecured loans ordinarily have higher interest rates than secured loans.
Secured business loans
Secured business loans are based on assets or ‘collateral’ so the lender will have confidence that monies can be recouped if the business defaults on payments. Often assets such as property, or merchandise are used to secure loans.
Interest rates on secured loans are often lower as there is a guarantee that the lender will get their money back; however, with long term secured loans interest rates can be higher as a lender is tying up funds for a long period.