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Business Loans: FAQs

01/11/2016
loan faqs

Business loans can be a complex and varied area where similar looking loans can in fact be wildly different in practice. After 2008 and the high street bank restrictions of lending, many alternative funding providers began offering alternate funding methods, making the choices afforded to UK businesses even wider. Unless you are an expert in the field, this can be somewhat overwhelming but with a little research, you may be able to access funding that is perfectly suited to your needs.

business loan faqs

Why Should I Consider a Business Loan?

There are a huge amount of reasons as to why a business might want to take out a loan. Expanding premises, restructuring of existing practices, investment in stock, expansion of staff and branching out into previously unchartered territory are among the reasons for taking out a loan. We believe almost all businesses could benefit from access to funding, as long as that funding is obtained with purpose and a thorough understanding of its terms and conditions.

Find out the different business loan options your business has

What are Some of the Potential Benefits of a Business Loan?

This will depend on the reason for the loan but typically a loan is taken out in order to help a business reach its full potential. Re-investment of stock for a retail business, for example, can help increase turnover.

This may lead to a wider range of products, which could result in further sales and a higher degree of customer satisfaction. In turn this could also make it more likely that the customer will return. Bulk buys also work out as far more cost-efficient and can therefore be a continuous investment opportunity.

At the other end of the scale a restaurant can expand or purchase new premises with a commercial mortgage. While this will likely be a long term loan, the increase in turnover of a larger number of customers could help the business access profits that would otherwise be unavailable to them.

Each sector has its own inherent advantages when accessing funding and even within each industry there will be immense differences.

How Long is a Business Loan Typically?

As previously alluded to, there is no typical loan, because there are few typical businesses and we believe that any good provider should be able to tailor the loan to suit the needs of that particular company.

We observed that short term and smaller loans can range from 6 months to 5 years, depending on the type of loan you are accessing. At the other end of the scale is the long term, high value loan, which can include commercial mortgages and large business loans. You should be aware before signing a contract that there may be early repayment penalty charges that could restrict you long term. As with any contract, all terms and conditions may be fully comprehended and discussed with your provider.

What Kind of Costs are Incurred?

One of the most complex parts of a loan are the myriad of loan fees that can end up being extremely costly. Reputable providers aim to make sure that fees are transparent, easily understood and fully explained from the outset.

The most important charges are interest rates. These will vary hugely from loan to loan and relate to the risk involved to the provider, the value of the loan, the length of the loan and fluctuations in the independently set interest rate for variable rate loans. Fixed rate loans remain the same during the loan’s duration.

Arrangement fees are common, although not universal and will typically be set relating to the value of the loan. Other fees, such as security, lawyer and possible penalty charges should also be taken into consideration.

What do I Need to be Eligible?

Eligibility will depend on the loan that is being sought, but the biggest hurdle is often a poor credit rating. Previous bankruptcies, failure to meet the terms of a previous loan and outstanding debts can all play a part. There are many loan providers which offer loans to businesses with bad credit, but they can be costly due to the increased risk to the provider.

Another thing to take into consideration is annual or monthly turnover. Businesses that do not meet a provider’s minimum level of turnover are likely to deny you access to the loan. Although this can be frustrating, the same provider might offer a different loan that can be more suitable and affordable.

Start-ups could be restricted from accessing funding as their provider has little or nothing to be able to judge the company on. Again, there are some funders that are designed to work with startups but your choices will be restricted.

Top Providers

There are many providers to choose from. Some offer a broad range of options to suit the various needs of UK businesses, while others are designed to work with certain sizes of enterprises or particular industries. We believe one of the most important things to research is whether a potential provider is reputable and the service they provide is transparent. We believe these are some of the most well-renowned funding providers in the UK.

  • Natwest
  • RBS
  • Boost Capital

Natwest

One of the largest banks in the UK, Natwest offer a variety of loans to suit just about all industries and sizes of ventures in the UK. Some loans, such as those for agriculture, have been tailored to suit specific needs, while others, such as their small business loans, are flexible and diverse.

RBS

Another high street bank with centuries of history and an enormous customer base is RBS. Small business loans do not incur setup fees or early repayment penalties and with their invoice finance model, we believe they are at the cutting edge of business funding in the 21st century.

Boost Capital

We believe convenience and accessibility are two of the most appealing parts of Boost Capital’s funding model. One of the newer breed of online financiers, we believe they provide a highly efficient business model that is suitable for smaller UK businesses.

Expert Market is a trading name of Marketing VF Limited, which is an appointed representative of Resolution Compliance Limited (FRN: 574048) ) which is authorised and regulated by the Financial Conduct Authority. Marketing VF Limited is registered in England and Wales. Company number: 06951544. Registered office: Imperial Works, Block C, Perren Street, London, NW5 3ED, United Kingdom.