Low interest rate business loans may be more commonplace than you might assume and with a little research and knowledge, even the smallest business loan can be made affordable. Although interest rates are one of the most important parts of a business loan, it is important that fees, penalty charges and other risks are fully understood before committing to any loan.
What to Look For
Interest rates are set with many things in mind. These include risk to the lender, value of loan and term lengths, so it would be wrong to look for one overarching loan product under the banner of “low interest loan”. Instead, a loan should be sought that meets your specific requirements. We believe the main things to consider include:
- Secured/Unsecured Loans
- Fixed/Variable Rates
- Term Lengths
No matter the size, length or type of loan, a secured or unsecured loan can make an enormous difference to the interest rates set within it. Secured loans are those that require the lender to put up assets as liability for the loan. This is typically property, such as business premises or even a home. As such the risk to the lender can be greatly reduced and this is reflected in the interest rate level.
Unsecured loans tend to be a lot more costly, but this should be weighed up against the reduced risk to the borrower. Businesses should think very carefully before taking on a loan where they might lose their home, or other assets, if payments are not met on time. Although it makes more sense for the lender to collect repayments than seizing assets, the responsibility ultimately lies with you.
Fixed and Variable Rates
Fixed and variable rates are a prime example of how similar loans can end up costing vastly different sums in regards to interest rates. A fixed rate loan is one where the interest rates are unchanged, making it easier to predict how much a loan will ultimately cost. Variable rate loans interest, on the other hand, will fluctuate according to those set by the MPC (Monetary Policy Committee), an independent body.
It is impossible, therefore, to fully predict which will be the cheaper option of the two. Fixed rate loans that are taken out when interest rates are low may be considered the best choice, however variable rate loans can work out best over the long term.
The length of a loan will greatly affect both the interest rates of a loan and the overall total you will pay back. It is in this area that the main difference is seen between short, medium and long term loans.
Short term loans will generally have the highest interest rates in order for the loan to make financial sense for the funder. As with all loans, this can vary depending on many other factors. This is not to say that short-term loans are the most expensive. Long term loans will set interest rates at a lower level, but as the payments stretch over a prolonged period of time, the amount of interest paid can far exceed most short term loans.
Some Top Providers
Funding options have greatly increased in the last ten years with many alternative funding methods and providers offering unique services and products that were not available beforehand. The choice available can therefore be overwhelming, and with an increase in disreputable companies, the need to research the topic thoroughly is even more crucial than ever before. With this in mind the following are what we believe to be some of the most reputable and highly regarded in the industry.
RBS offer a variety of business loans for most sectors in the UK. Their small business loan (£1,000 - £25,000) has a fixed interest rate of 7.71% p/a.
Barclays are one of the most renowned business funding providers in the UK and offer many flexible loans to suit the needs of most businesses. Small businesses can access loans as small as £1,000 and long term, high value loans can be structured for up to 20 years in length.
Another large high street bank, Natwest loans are accommodating and diverse. With a fixed interest rate of 7.71% p/a for their small business loan, and term lengths stretching to 10 years, the flexibility and potential low costs of Natwest business loans are well documented.