Businesses face financial instability daily. That’s why business funding is one of the most critical factors to help build and grow an enterprise. If you need financing to grow your UK business, a business loan can provide a fast, flexible and affordable solution to help support your goals. Find the best funding options for your business and learn how to avoid costly mistakes with Cashfloat. Discover everything you need to know about small business loans in 2020.
What is a small business loan?
A small business loan is a type of low-cost financing that enables businesses to borrow money to fund business operations. This type of loan can be used for most business-related purposes, including boosting cash flow, hiring new staff, buying new equipment and paying unexpected bills.
How do business loans work?
A business loan operates in the same way as
any other business finance. The credit
provider gives you the money upfront, and then you repay the loan with interest over a
pre-agreed
repayment period in scheduled monthly payments.
The term “small business loans” is used to describe funding for smaller sized businesses. They
can
include a wide variety of business credit options, including both secured and unsecured business loans,
MCA’s, invoice financing and more. Each of these business lending structures will have a unique
way of
operating.
Fill out and submit an online application form.
Get your funders lending decision (usually within 24 hrs).
Once approved, you will get same day funding into your business account.
Make your monthly repayments.
You can significantly increase your chances of getting a business loan by improving your credit score. This is often the number 1 factor that will cause a lender to decline an applicant. With a good credit score, you are showing that you aren’t reliant on credit and that you are responsible with your money. This is what every lender ensures before funding a business.
Who can apply for a small business loan?
Most businesses can apply for funding including sole traders, limited companies and SMEs (small and medium enterprises). In general, any business with under 500 employees can apply for this type of loan in the UK. So if you are looking for an SME loan, LTD company loan, or a sole trader loan and you have less than 500 employees, even if you have poor credit, you may still be eligible!
Do I qualify for a business loan?
Every business loan and loan provider is different, but here are some standard requirements all applicants will need to meet to be eligible for any small business loan in the UK:
- Live in the UK and be over 18 years
- Be registered to operate as a UK – based business.
- Your business can demonstrate its ability to repay the loan
- You have no late payments or outstanding CCJs.
Business loan rates
Your business sector and credit history can also significantly impact the business loan interest rates that you are charged. Interest rates can be either fixed or variable (fluctuate during the loan term). All repayment terms and charges will be visible when you apply for a loan, so you’ll know exactly how much it will cost.
Restaurants
Retail
Construction
Wholesalers
Salons
Services
How much can I borrow?
You can get a business loan from £1,000 up to £500,000. A £20,000 loan is a very common amount that businesses borrow to boost their cash flow.
Small business loans are usually repaid over a short time frame – up to 3 years and are often unsecured. However, if you are looking to take out a bigger loan, you may be required to provide collateral. Since if your business were to go bankrupt and you can’t repay the loan, the lender will repossess the collateral instead of payment. Therefore, although these loans have lower interest rates, they are much riskier to borrow.
How can I use my small business loan?
A loan can be used to finance almost any
business-related purpose. You may need to move to larger premises, require a cash boost to
invest in
stock levels, hire more staff, purchase new equipment or to pay for other business
services.
Small business funding can also be used to pay for unforeseen costs, including, economic
fluctuations caused by seasonality or just another unexpected bill.
What are the best business loans available?
With so many small business funding options available, it can be challenging to find the right one. From bank loans to revolving credit, finding the right lender is vital. Below we have taken a look at some of the best business loans in the UK, from top business loan providers to help you make an informed decision.
| Company | Loan amounts | Loan Duration | Min monthly turnover | Min time trading |
| SME Loans | 1k – 500k | 1 – 5 years | £5,000 | 6 months |
| Liberis | 50k – 150k | 12 – 24 months | £2,500 | 4 months |
| Start-up Loans | 1k – 25k | 1 – 5 years | – | 2 years / under |
| Funding Circle | 810k – 500k | 2 – 5 years | – | 2 years |
| Funding Options | 10-30% annual TO | 1 month – 5 years | – | 2 years |
| Capalona | 1k – 500k | 1 month – 5 years | £10,000 (annual) | 5 months |
Other small business funding options:
There are numerous types of small business funding available. Depending on the type of business, you may be eligible for more specific types of financing. For example, if you own a hair parlour, you may qualify for a beauty parlour loan. Here is a list of the main types of small business financing available to most businesses:
Bank Loans: Businesses can borrow cash loans from their bank, and repay it over a fixed period. Most banks will require directors’ guarantee. If the business defaults on making repayments, the director will be personally liable for the debt.
Revolving Credit facilities: A revolving credit facility enables a business to borrow money whenever they need. You only pay interest for the months that you use this facility and repay the money when you have the funds available.
Peer to peer lending: This is when a business borrows from investors instead of banks. Peer to peer lenders may also ask for a guarantee in the same way banks do when you borrow a loan.
Invoice financing: This is when a lender buys off your outstanding invoices for a fee, releasing the money that customers owe you. You can get invoice financing from building societies, banks and independent companies who specialise in this area.
Merchant Cash advance: A merchant cash advance is where you borrow money against future debit/credit sales. This type of loan comes with set fees instead of interest rates because the amount you repay depends on the business’ sales.
Working capital: This type of credit is designed to help pay for the daily running costs of a business. Like banks, most working capital loans will require a personal guarantee before providing the loan.
Once you’ve decided on the funding option for your enterprise, we also recommend you to compare all your lending options to get the best business loan rates .
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How can I get a quick loan for my business?
- Having the last three bank statements handy
- Knowing off-hand the details of when you set up your business
- Knowing your current credit score.
Once approved, many lenders will provide same day payout on your business loan.
Are business loans for women available?
What business loans are easy to get?
Is it safe to get a loan for my business online?
- If the lender is on the FCA register
- If the website connection is secure – A padlock in the URL
- Whether the application fees seem reasonable
For more information, click here to read our guide to getting online loans safety.
Warning: When looking for a small business loan provider, keep in mind that only lenders who offer loans to limited companies need to be regulated! This means that some lenders who only provide loans to sole traders may be unregulated! If you are a sole trader, we recommend that you only borrow from a regulated lender for your own safety.
Do businesses have a credit rating?
Other ways you can improve your business’ credit rating include:
- Always paying back credit that you have borrowed on time.
- Paying to have your accounts audited, it gives them more credibility.
- Filing your accounts well before the deadline.
- Filling out the Questionnaires that CRA’s send you.
- Keeping your personal credit record in good shape – this is vital if you are a new business.