The third guide in our series is going to be answering the question: ‘What is a business loan?’.
A Business Loan is a common form of finance for businesses and one of the first options many S.M.Es consider when seeking funding. The lender provides money that the borrower pays back, with interest, over an agreed period. Many funders provide business loans in the UK, including high-street banks, challenger banks, peer-to-peer platforms and other alternative finance providers
The best option for your business will vary dependant on what amount of debt it can afford to repay and whether you meet the eligibility criteria, which varies from lender to lender. The main two variable terms of any business loan facility are the repayment period i.e. how long you’ll have to make repayments for and the interest rate charged.
Repayment period
Your business loan will have a set duration, on average from 1 to 5 years, throughout which you’ll need to repay the amount you borrowed plus interest.
The lender may charge you for paying off your debt early as it will have already committed that money to your business. There are however lenders in the market which provide exit fee-free facilities, often these lenders insist on an arrangement fee at the outset.
Interest rate
The interest rate is dependant on how risky the lender perceives the business as a potential borrower.
For example, if you have assets you are willing to offer as security and good personal and business credit ratings, you’ll be deemed less risky than someone who has poor credit and is no willing/able to pledge assets as security.
What documents would I be asked to provide when applying for a business loan?
For a business loan application to be shown in the best light to a prospective lender, you would need to be able to provide the following documents:
In addition to the above some lenders may also ask for:
How long does it take to get a business loan from start to finish?
Speed is a key factor when searching the market for a business loan. Many ‘tier 1’ high street funders would take between 4-6 weeks to pay out this type of facility, where as a ‘tier 2’ or ‘tier 3’ peer to peer or alternative lender could take between 4 days – 3 weeks.
Often speed of funding comes hand in hand with cost. If the client requires funding quickly it is often the best route via a tier 2 or 3 lenders, as opposed to the Highstreet and as a result the cost of funding generally increases.
If you’d like to arrange a no obligation exploratory call to discuss, please get in touch.
Helping Businesses Source the Finance They Need to Grow
A Commercial Finance Broker with over 20 years experience in the SME sector working in senior…
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