Business loans

Question 1

Can my business get a loan?

Most businesses are eligible to get a loan, but your options could be limited by the type of business you have. For instance, government start up loans are now only available for new businesses. Meanwhile, you must have already been trading for a set time in order to get a cash advance loan.

Lenders only need to be regulated if they're offering loans to limited companies. So, some lenders that only deal with sole traders could be unregulated.

There's no limit to how many loans you can take out for your business, except that you need to be able to show the lender that you can afford each loan when you apply.

Question 2

What types of business loans are out there?

Bank loans

Bank loans are cash loans that are offered by building societies and banks. Your business borrows a fixed lump sum, then pays it back over a specified period of time. Most bank loans need a directors' guarantee, which means that if your business can't pay the loan back then the director is personally responsible for the debt.

Revolving credit facilities

A business credit facility allows you to borrow money whenever your business needs it. You only pay interest on the amount that you withdraw, and you can pay it back whenever you can afford to do so.

Peer to peer

This is a sort of social lending, offered by online platforms. You borrow money from investors that are looking for a return on their money. Just like with bank loans, peer to peer lenders might ask you for a directors' guarantee when you apply for a loan with them.

Short term

A short-term business loan normally only lasts a few months, but sometimes you could potentially borrow for just a few days. Some short-term lenders charge interest monthly rather than annually, so you should double check that you know exactly how much the loan is going to cost you before you apply.

Asset backed

An asset backed loan is a secured loan which is backed by a business asset. This can be a good option if you're looking to borrow a larger amount of cash, as you tend to be able to borrow more with this type of loan than with others. You can use assets such as machinery, property, stock or land to back your loan.

Invoice finance

Invoice finance works a little bit differently to a normal cash loan. Instead of lending you a lump sum, your lender buys outstanding invoices from your business for a fee, releasing the money that you're owed by your customers. Banks, building societies and specialist companies all offer invoice finance. There are two different types of invoice finance:

Factoring: this is where the lender manages your sales and collects the money directly from your customers.
Invoice discounting: This is when the lender releases funds before your invoices are paid. You then owe the outstanding balance to them.

Working capital

This type of loan is designed to help you to pay for the everyday running costs of your business, for example paying employees' wages, rather than other long-term investments. Just like bank loans, most working capital loans require a directors' guarantee.

Cash advance

Under this type of loan, you borrow money against your future debit or credit card sales. They often don't quote an interest rate, because the amount which you pay back is dependent on your card takings. Instead, there is set fees at the start of your loan, and daily charges until all of the money is repaid.

Government start up

These are government backed loans which are designed for startup businesses. They offer a mixture of low rate loans and grants to new businesses. If you're a new business, then you could potentially borrow up to £25,000 and pay it back over one to five years.