The handy, quick guide to business loans

If you’re self-employed or running a small business, the key to finding and securing the right business loan is preparation.

As with any type of loan, you’ll need to back up your application with full details of your financial position to prove how much you can afford to borrow – which means preparing an up-to-date business plan and financial statements and having documents to hand for any property or assets you’re offering as security.

A quick overview

When it comes to business finance there’s a dizzying array of options. Terms, rates and fees can vary widely so it’s crucial to shop around and get advice on which loan structure would best suit your needs.

  • Many loans are offered with a choice or combination of fixed or variable interest and some may allow you to make interest-only payments until you repay the loan. These are crucial decisions that dictate the size of your repayments and whether you’ll be at risk from hikes in the interest rate.
  • Lenders often have a minimum borrowing amount for business loans so you’ll need to choose carefully to avoid being forced into borrowing and paying interest on more than you need.
  • You can usually expect to pay an application fee for your business loan and, often, a monthly or quarterly service fee. These fees can mount up quickly so it’s important to look at them alongside the interest rates on offer.

Types of business loan

There are many different types of business loan and most lenders offer a range of products. Here’s a brief summary of some of the most common loans:

  • Business overdraft / line of credit
    A flexible facility that lets you borrow, repay and re-borrow money repeatedly up to an agreed limit to help you smooth out any ‘lumps’ in your cash flow. Interest is usually calculated daily, based on the exact amount you owe so you are only ever paying for the amount you need.
  • Commercial loan
    Similar to a mortgage, this is a fixed-amount loan with regular repayments. You may need to offer property or other assets as security. Some lenders will let you negotiate a repayment schedule that matches your cash flow.
  • Equipment finance lease
    The lender buys a vehicle or piece of equipment and then leases it to you. You make regular ‘rental’ payments and the lender keeps the asset at the end of the agreement.
  • Hire purchase
    The lender buys a vehicle or piece of equipment and sells it to you in instalments. You make regular payments and, at the end of the agreement, the asset is yours.

Some lenders also offer specialised loans to meet the needs of businesses in specific industries.

Each type of loan offers a different level of flexibility, cost and risk and will have different tax implications so it is vital that you seek advice before making any decisions.

At Loan Market [region] we give you comprehensive information and guidance to help you choose the right business loan for your specific needs.

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