Business loans are now offered in more places than traditional lenders were previously able to. Entrepreneurs can approach High street banks, building societies, specialist lenders and internet brokers and crowd funders to offer loans to small businesses. There are two main types of small business loans that are available:
- Flexible loans – are either capped or have a variable interest rate, with a choice of a monthly or quarter monthly repayment periods.
- Fixed loans – has a fixed rate of interest and a repayment plan is predetermined.
Flexible loans are risky particularly when the interest rate on your loan can vary depending on the fluctuations in the base rate. These rates can either go up or down during the duration of your loan and you run the risk of hiking up your interest rates in the worst-case scenario. The only upside is if the rate goes down, so do your repayments.
Small business loans can range from £1,000 to £25,000 with a repayment period of one to 10, or sometimes even 15 years, if you provide an asset as security. Alternatively, an unsecured loan will usually carry a higher rate of interest and will provide less money over a shorter period of time.
Bigger businesses can access a larger loan, but the money lender will require an asset as security such as a business property, or a personal guarantee from a company director. Generally speaking freehold and properties with a long lease are usually more favourable.
Other options to consider when trying to raise money for your business include:
- Short term loans – usually less money is borrowed and is generally repaid within one year, at a higher rate of interest.
- Credit cards, a credit account and overdrafts are also worth considering, depending on your circumstances and credit status.
Always shop around before taking out a loan, as there are new money lenders coming into the market on a daily basis, which can potentially offer you a better rate of interest with a shorter period of time to repay it back.