This week we are looking at Business Loans. Good old fashioned straightforward cash in the bank loans
I’m sure you see many adverts for business loans or even hear them on the radio if you’re a fan of sport radio or commercial radio in general…probably even a drop on spotify now a days.
While lending adverts are becoming more common with exciting rates from 0.5% or 1% of 3%, how easy are they to get and what is the benefit to your business?
Well, for a start:
• You could have a cash amount sat in the bank for a rainy day
• Take advantage of stock offers or bring forward recruitment drives
• Put in to action your growth plans and prevent falling behind your competitors
• Arrange a deposit for a commercial property you are looking to rent or purchase
Just to name a few!
However, like all finance there are some things to note before making your decision, and some tips to ensuring you are eligible for the facility and secure it at a great rate.
First the things to note;
• Business lending is typically unregulated (if you are a ltd company, partnership over 4 or a sole trader looking to borrow over £25k), this means communications like financial promotions are dealt with in different ways and typically outside of the FCA jurisdiction. You will often see Rates from 0.8% pa or 2.6% etc; the likely hood of obtaining these will be lower in most cases as businesses will be looking for relatively large amounts of funding over longer periods, so expect rates between 6% and 25% depending on your business credit profile.
• CCJ’s will typically prevent you from obtaining any form of finance but mostly unsecured lending, a strong guarantor will likely be needed or some form of security i.e. a home or commercial property or a buy to let.
• While unregulated business lending has it’s benefits it also brings higher levels of risk and so an underwriting team will look closely at all aspects and do not be surprised if a Personal Guarantee is asked for (PG) from all Directors or Shareholders over 25%, it will always strengthen an application even if not a requirement.
• If you are a startup business (a company trading between 0 & 24 months), you will find it difficult to obtain funding in traditional means without a combination of a solid business plan, cash flow forecast and security. There are alternatives, which you will be able to see in our other blogs.
What can you do to strengthen your application;
• If you have a CCJ which is active personally, then make sure it is cleared immediately before applying, if you don’t want to provide security.
• There is a solution with semi secured business lending which uses a format called unilateral notice, if you are a startup business this can be a great way of obtaining the funds you need without the hurdles of a second charge mortgage.
• You will always need to provide full name of all Directors or shareholders over 25%, their Dates of birth, residential history up to 5 years, 6 months business bank statements, Full filed accounts (needs to include notes, profit and loss and balance sheet). If you’re a sole trader you will need to provide personal income and expenses as well as personal bank statements.
Business loans are the most straight forward way of organising funds in your business without losing equity to an investor and also the quickest of all the funding options. A lot of business owners look at it as the panacea of all things cash flow, but be careful to not fall into the trap of borrowing more than you need and always seek advice or input from a professional if you’re not confident.