{"id":5596,"date":"2018-07-05T16:12:26","date_gmt":"2018-07-05T15:12:26","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=5596"},"modified":"2024-07-18T10:44:52","modified_gmt":"2024-07-18T09:44:52","slug":"what-is-a-business-loan-and-how-can-my-company-get-one","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-is-a-business-loan-and-how-can-my-company-get-one\/","title":{"rendered":"What is a business loan and how can my company get one?"},"content":{"rendered":"

When you\u2019ve just formed a new company and are in the early stages of trying to grow your business, start-up costs can be a huge burden.<\/p>\n

Setting up premises, hiring staff, taking out securities and insurance, overheads, collateral, and launching marketing activities \u2013 it can all start to add up incredibly quickly. Bearing that in mind, most company owners want to have a good idea of precisely how much they\u2019ll need to get off the ground and start trading.<\/p>\n Our Fully Inclusive Package - the perfect way to form a company<\/span><\/a>\n \n

According to a study by researchers at Geniac<\/a>, the average UK start-up spends around \u00a322,756 in its first year. To a lot of aspiring entrepreneurs, that\u2019s going to sound like a pretty tall order. Although it\u2019s perfectly possible to launch a successful business with less money than that, it\u2019s also worth pointing out you can secure that kind of funding (and much more) for your business relatively easily.<\/p>\n

All you\u2019ve got to do is apply for a small business loan \u2013 and to help you do that, we\u2019ve created this handy guide that explains various loan types, what to look for in a loan, and how to apply.<\/p>\n

What is a business loan and how do they work?<\/h3>\n

Simply put, a business loan is designed specifically for commercial purposes \u2013 and there are different loan products that lenders offer to business owners depending on why the loan is needed and what the money will be spent on.<\/p>\n

But no matter what type of loan you\u2019re on the hunt for, banks and non-traditional lenders will typically offer you three distinct features to choose from, that will dictate how and when your business loan needs to be repaid.<\/p>\n

Fixed or variable rate<\/h4>\n

The first is whether you\u2019d like to apply for a fixed rate business loan or a variable rate business loan. If you choose a fixed rate loan, your interest rate will remain the same throughout the duration of your repayment contract \u2013 or it could stagger to various fixed interest price points, after a certain amount of time.<\/p>\n What is the Business Asset Disposal Relief scheme, and is my business eligible?<\/span><\/a>\n \n

Meanwhile, a variable interest rate loan will see your rate of interest rise and fall depending upon the market.<\/p>\n

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Variable rates are often desirable at first glance because there\u2019s always the prospect your repayments could go down in time. But when it comes to repaying a business loan, it\u2019s typically best practice to choose a fixed rate product, so that you know exactly how much you\u2019ll be expected to pay on a regular basis to settle your loan.<\/p>\n

The next choice you\u2019ll need to make when selecting a business loan is whether you\u2019d like to take on a secured loan or an unsecured loan.<\/p>\n

Secure or unsecured<\/h4>\n

A secured loan is a lending agreement that\u2019s backed by some sort of asset \u2013 for example, a property or expensive equipment that can be used as collateral. In turn, your lender ultimately claims ownership over that asset if you fail to repay your loan as per the original terms of your agreement.<\/p>\n

On the flip side, an unsecured business loan is not backed by an asset. That being said, some lenders tend to ask for a director\u2019s guarantee, which will in turn place a company director liable, if a loan is not repaid in full.<\/p>\n

Typically, smaller loans are unsecured, and do not require a guarantee \u2013 but when the amount starts to increase, that\u2019s when a guarantee or some form of collateral security may be required.<\/p>\n

It\u2019s also worth noting that, although they are safer for consumers, unsecured business loans tend to carry higher fixed interest rates as a way of compensating your lender for taking on a bigger risk.<\/p>\n

Short-term or long-term<\/h4>\n

Your final choice in terms of selecting a loan product is whether you\u2019d like to opt for a short-term or long-term loan. This often depends on how much you\u2019d like to borrow, what you\u2019ll be using the money for, and the sort of interest rates your lender may be offering. Various banks have minimum and maximum loan terms, and they may offer you different rates based on your personal or company circumstances.<\/p>\n Should I open a business bank account for my company?<\/span><\/a>\n \n

Generally speaking, you should be shooting to repay your business loan in the shortest possible amount of time to lower the accumulated interest that has to be repaid, in addition to your original loan amount. That being said, you should always opt for a loan repayment plan that is comfortably manageable within your company budget.\u00a0 Don\u2019t get overambitious, because you may end up regretting it later.<\/p>\n

Who offers small business loans?<\/h3>\n

If you\u2019re seriously thinking about taking out a business loan for your new or existing company, your first port of call should be your local high street. More than likely your current personal or business banking provider may already offer various business loan products suitable for your business needs.<\/p>\n

For example, Barclays<\/a> offers 9.9% APR representative loans of \u00a31,000 to \u00a325,000 \u2013 and depending upon what type of business you\u2019re running, you can borrow up to \u00a3100,000 unsecured. If you\u2019d like to explore this route, Quality Company Formations can help you get started by setting up a business bank account with Barclays.<\/p>\n

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Barclays isn\u2019t the only high street provider able to offer great business loans. HSBC, Lloyds, NatWest, and Santander all have a range of base rate, fixed rate, and commercial fixed rate loans available.<\/p>\n

You can apply online for most business loans under \u00a325,000. If you want to borrow more than \u00a325,000 or would like to chat about rates or products, it will be worth phoning or visiting a lender to get more information.<\/p>\n How can I turn my freelance work into a small business?<\/span><\/a>\n \n

Another point worth considering is your ability to obtain a small business loan for your business will often be linked in some way to your own personal credit history. Commercial lenders typically look at loans on a case-for-case basis and assess them accordingly. That means your personal finances could be weighed into the decision on whether to extend an offer of a loan to your company.<\/p>\n

Most banks offer free lending advice to business owners, so if you\u2019re concerned about how your personal credit history could impact your business, you should visit your local branch to chat about your options. Likewise, if you have a company accountant, they should be able to advise on your best course of action.<\/p>\n

When in doubt, don\u2019t forget to take your time and shop around. There are thousands of business loan products out there, and not all of them are created equal. If you need help sifting through the initial sea of potential products, mainstream comparison sites like GoCompare<\/a> can also help.<\/p>\n

Can I get a business loan from the government?<\/h3>\n

The short answer is: yes. The UK Government has offered more than \u00a3400m worth of loans to around 50,000 businesses in the UK through its Start Up Loans<\/a> initiative.<\/p>\n

Take a look at the Start Up Loans Company. Government-backed Start Up Loans are personal loans that can be made available to individuals interested in starting a new business in the UK.<\/p>\n

You can also apply for a loan for your existing business \u2013 although these loans are designed only for companies that have been trading for less than 24 months.<\/p>\n

On top of funding, the company also offers 12 months of free business mentoring to businesses.<\/p>\n

So, what type of loans can you receive from the government?<\/p>\n

Start Up Loans are unsecured, and so they don\u2019t require you to put forward any assets as collateral. The scheme allows you to borrow anywhere between \u00a3500 and \u00a325,000. That being said, you can actually apply for more if you\u2019re setting up a company with more than one person. The scheme allows individuals from the same company to apply for up to \u00a325,000 each \u2013 allowing you and your partners to obtain up to a maximum \u00a3100,000 for one business.<\/p>\n A professional company secretary to look after your business<\/span><\/a>\n \n

Government Start Up Loans come at a fixed interest rate of 6% per year, and repayment terms range from one year to five years. There are no application fees or set-up fees associated with these products, and the Start Up Loans Company also offers free application support.<\/p>\n

As part of your loan application, you\u2019ll be expected to describe specifically what you intend to use the money for. You\u2019ll also need to include your business plan and a cash flow forecast outlining how the extra cash will help your business to grow.<\/p>\n

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Please note, there are some activities you cannot use a Start Up Loan for. These include:<\/p>\n