A business loan involves borrowing capital from a lender, which is repaid over a fixed period. It can be used for almost any business-related purpose.
Loans are a common option for both start-up businesses and established companies. They can be used to fund expansion, maintain cash flow throughout the year’s peaks and troughs, or pay off debt at a lower interest rate.
It is always recommended to take specialist advice from a broker regulated by the Financial Conduct Authority with experience in this area. ABC Finance has over twenty years of arranging business loans, negotiating on our customers’ behalf to save money and find the best deals.
How to apply for a business loan
Here’s a step by step guide on how to apply for a business loan.
Before you apply
Seeking a loan can be exhausting, with many lenders and types of loan available. It is always recommended to take specialist advice from a broker regulated by the Financial Conduct Authority with experience in arranging business loans. This means that you are protected as a consumer if anything goes wrong.
Whilst it is entirely possible to apply for loans directly as a business, multiple applications can appear on your credit score. An expert broker will be able to assess the options available, identify the lenders who will be the best match for your needs, guide you through the application process and negotiate on your behalf.
The first step before applying for any loan is to review your business plan and define what the purpose of the funding will be. The more information you can provide your broker with, the more likely they will be able to find the best financial arrangement for your business.
Choosing which type of finance you need
Business loans are extremely flexible, and there is a range of options available. Some key considerations are:
- Whether you want a short-term or long-term loan
- The amount of funding you require
- Whether this will be secured or unsecured.
Unsecured business loans
Unsecured business 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 of a 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, although do offer flexible repayments on terms of up to five years.
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 as collateral 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 the prospective lender will be tying up funds over a longer time frame.
Common types of secured loan are:
Invoice finance
Invoice finance or ‘factoring’ is an arrangement where all or some unpaid invoices are sold to a third-party financier. The financier pays immediately for the invoices, and then the debt is transferred to them. Invoice financing can help a business maintain cash flow if payments have been outstanding for a long time and money is required urgently.
Asset and inventory financing
Asset and inventory financing is also known as warehouse financing: Provides short term funding based on the value of a company’s inventory or assets, helping businesses manage cash flow tied up in stock. This option is often used by smaller privately owned businesses that don’t have access to other lines of credit.
Bridging loans
Bridging loans are a form of short-term funding secured against property. A bridging loan ‘bridges the gap’ while waiting for funds. Interest is charged monthly until the loan is repaid. The amount you will be charged will vary on the value of the security you use, the loan to value and your circumstances.
Loan-to-value (LTV) is a ratio used by lenders to determine the equity in a property—an asset minus its liability, such as a mortgage.
The best deals are usually offered for loans against residential property at 50% loan to value.
ABC does not charge commitment or broker fees on bridging loans.
Tips for applying for business loans
Consider how long you need the money for
Short-term loans are 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. Unsecured loans are usually offered at a higher interest rate.
Long-term loans are designed for growing businesses to enable them to invest and make significant commitments. Typically, a long-term loan will range from three to ten years and, in some cases, up to 25 years. Long-term loans are secured against assets such as property or equipment.
This type of loan is often used for substantial purchases and the loan amount is generally much larger than short term loans that are often used to maintain cash flow.
Decide how much you need to borrow
Business loans can be used for almost any business related reason, however, it is important to evaluate whether you need to factor in other expenses in addition to the main purpose of the loan.
If you are planning a substantial purchase, such as expanding a property, the amount you will need should also cover immediate cash flow needs so the business can keep operations running.
Gather your documentation ahead of time
To apply for a business loan, the business must be based in the UK and have been trading for over six months.
The main documents you will need vary between lenders, however, you are likely to need the following information upon application:
- Proof of company incorporation.
- Bank statements.
- VAT returns.
- Inventories.
- Business plans.
How much can you borrow?
Business loans can range from £5,000 to £750,000 and beyond, depending on the circumstances and whether you choose a secured or an unsecured loan.
Request a call back from one of ABC’s friendly experts to find out how much you can raise.
https://abcfinance.co.uk/business-loans/
How can I get the best deal?
You can get the best deal on a business loan by speaking to ABC Finance in the first instance. We are a family company that prides ourselves on finding the best deal for our customers and our Trustpilot scores demonstrate this.
ABC finance has helped secure loans for many thousands of business customers with a range of credit ratings.
We work with a panel of lenders that understand that businesses have their ups and downs and that this is typical for many companies – even very successful ones. A range of factors are considered when applying for a loan. Whilst good credit is helpful, it is not the only consideration for lenders.
The more we understand about your business and your needs, the more likely we can match you with an affordable solution.
https://abcfinance.co.uk/
Contact: 01992 620008 or request a free call back to speak to an expert.