What are the best small business loans available right now? This is the question being asked by business owners across the UK today. That's because most small businesses need an injection of working capital, often to finance their growth plans, or sometimes to get through a period of tight cashflow.
If you've searched for a small business loan, you'll have spotted that there are always loads of loan opportunities out there. Banks, investors and other finance providers always have money they want to lend to business owners. Despite the wealth of opportunities, finding a lender who'll accept your application isn't always straightforward and even if you do, how can you be sure their loan is the best fit for your business?
Answering the questions below will help you be more successful in your search for the best small business loan.
Perhaps you need to fund the hiring of new staff, purchase of new stock or an expansion of your premises, all with a view to business growth. The first step in any growth project is to plan future cashflows, mapping out anticipated income and payments. This helps you to see when you'll be short on cash and gives a clue as to how much you need to borrow. It also helps you to assess the period over which you want to repay the loan.
Where the finance is to support growth activities, you're expecting higher future revenues and profits. Part of your planning will be to identify when these will start to occur and how they will impact on your cashflow.
For example, if you want a loan to buy new stock that you plan to sell within a few weeks or months, the receipts for sales should come in quickly and allow for a shorter repayment time. Borrowing to purchase a new piece of equipment, or simply to replace an existing asset, could mean it takes longer to generate the funds for the repayments.
If you want a loan because you're facing a period of weak cashflow, perhaps because of a major tax bill or to see you through a period when sales are slack, potential lenders will look at you differently. Lenders are always concerned about risk and any sign that your business may be facing difficulties will make them less likely to offer a term loan. However, there are other borrowing solutions, such as invoice finance or merchant cash advances, that may be more appropriate.
As part of your search for the best small business loans it makes sense to seek advice and get information from business finance specialists. They should have experience of helping firms to secure the finance that's most appropriate for their circumstances.
Your cashflow forecast or budget should give you a good idea of how much money you need. Every penny that you borrow will cost you, both in fees and in interest charges, so you only want what you need and no more.
The average size of a small business loan in the UK is around £94,000. However, individual loans will vary hugely in size, from just a few thousand pounds to finance well over £100,000.
With many finance providers, the amount you want to borrow is not their primary concern. They're more interested in managing the risks around being repaid.
It's harder for a startup to secure a loan than for a more established business. Many lenders are looking for assurance that your business is being run well and is generating the profits needed to cover its debts. A business with two to three years of trading history, if not longer, will be looked on much more favourably.
Age also makes a difference to the cost of the finance. Lenders may be willing to release funds to a younger business but may ask for more in terms of guarantees and they may also charge a higher rate of interest on the debt.
As part of the loan application process you will usually be required to submit financial records, such as bank statements and published accounts. What lenders want to see is a consistent financial history, ideally of growth and profit. Exceptions will be made in the light of major disruption caused by circumstances outside your control, such as the Covid-19 pandemic. They want evidence of your business planning and business processes, in order to have confidence in continued positive performance.
It's important to be aware of your credit scores - both your own and that of your business. Your credit score will be taken into account during the evaluation of your loan application. The number of applications you make could also impact your credit score.
A low credit score will make it harder to get a loan. However, some lenders are open to providing finance to small businesses with lower credit scores. The higher risk is likely to be reflected in the interest rate charge on the amount borrowed, but that could be a price worth paying if it allows you to borrow the money you need.
Some small business loans are better suited to firms that sell on credit to other businesses, while others are designed for those who sell directly to consumers for immediate payment. Some who sell business to business (B2B) may do so on credit terms of 30, 60 or even 90 days. Invoice finance or factoring is one example of a small business loan product that effectively eliminates the weeks or even months of waiting to be paid, and by doing so, it makes cashflow planning much easier.
Many lenders will only serve specific industries. The benefit of this is that they have a deeper understanding of how businesses operate in those industries and, therefore, they have a better appreciation of risk in those sectors. Your small business may be able to get a more favourable loan from a provider who specialises in your industry.
An unsecured business loan may well cost more than one which is secured on an asset. You're also more likely to be able to borrow more if you can secure the finance against an asset.
A secured loan gives the lender somewhere to go should your business run into insolvency problems, or be unable to pay its debts for some other reason. By offering up an asset, such as buildings or equipment, as security for a loan, you're giving them a route to still getting at least some of their money back.
Many loans, even unsecured loans, require company directors to provide a personal guarantee.
When you speak with one of our team, you're talking to a business finance expert with extensive experience in helping firms like yours.
Many of our clients are business owners looking for working capital for business growth. They're seeking to expand their teams, grow their turnover and take a larger slice of overall market share.
We help them to find the funding they need so that they succeed in turning their ambitions into reality.
Our clients are drawn from a wide range of industries. Because we work with a panel of over 250 lenders who between them offer a wide range of funding options across many sectors, we help them find the solution that's cost effective, and appropriate to their needs.
Let us help you find the best small business loan for you. Get in touch with us today.