A Guide to Business Loans

A business loan, much like a personal loan, will allow you to borrow an agreed sum of money over a period of time, wherein the interest rate and monthly repayments are both fixed. Banks will offer a varying amount of money to borrow, with certain loan providers specialising in short-term finance solutions, some offer larger sums of money over a longer period, whereas others provide start-up business loans for new businesses.


Why Choose a Business Loan?

Much like business credit cards, business loans can assist with cash flow, helping companies to balance their books during periods where any outgoings fail to match income. However, it is more likely that a loan will be offered in response to a planned business endeavour, such as to pay-off a large-scale business expense, or to fund an expansion plan. Moreover, it is often necessary to apply for a start-up loan when setting up your own business, wherein banks and loan providers agree to lend money upon approving an applicant’s business plan and strategy. In addition, the existence of ‘peer-to-peer’ lenders mean that businesses can borrow from people, rather than a bank. Furthermore, ‘peer-to-peer’ loans will allow you to choose between secured, unsecured, or asset finance varieties.

Additionally, depending on your provider, business loans will also provide the same level of flexibility as a personal loan. For instance, certain loans will allow you to set out how much you would like to borrow, and for how long. Whereas others offer flexible repayment options, or are even exempt from early repayment fees. Like with any loan or credit, it is advised that you use a price comparison website to find which loan-provider best suits your desired terms, loan amount, and offers the most competitive rate of interest.


Business Loan Eligibility & Applications

Both prospective business owners and limited companies can apply for loans, but it should be noted that some providers will only offer funds to the latter. Primarily, if you require a loan for a start-up company, then you will need to make clear the reason for the loan, and the amount you need. However, it is likely that you will only be able to confirm the exact amount needed during the final stages of your business plan. However, before you even submit your application, it is wise to review your credit history and score. For instance, if your business is a start-up, or less than three years old, your personal credit history will be considered during the application process. In such case, it would be prudent to ensure your personal credit is strong before making your application, and so, to request your credit report from each of the major credit reporting agencies. Simply, the better your credit score, the more likely your business plan will be improved and your start-up funded.

The next step should be deciding which commercial bank would make the best lender for your needs. Many businesses would be advised to do so by simply using a price comparison website, but it shouldn’t be noted that both smaller, regional banks offer competitive rates on their business loans, rather than simply the nationals. Furthermore, you may be best served investigating your local credit unions, and if you are a member of a particular union, you can talk to an advisor in-branch.

Once you have decided on your preferred loan-provider, you should ensure you have your business plan ready to submit. However, it should be noted that your business plan is distinct from the application form that you will also be required to submit. A strong business plan will also include several years of past and projected financial statements, it will feature a statement of collateral, value your assets, and a trajectory of your business finances. Crucially, your business plan will include an analysis of the market your business will enter, so it goes with out saying that research is of the utmost importance.

After completing your business plan, it is necessary to book an appointment to present your business idea to the lender. Simply, it is essential to make your presentation as dynamic and professional as possible. In short, applicants should be ready to present financial statements, spreadsheet and any business graphs to illustrate your plan. However, one of the most decisive aspects of your application will be your executive summary, a condensed outline of your entire plan, which many lenders will decide whether they want to continue reading on alone.