Business Loans are a great way to access the funds you need to grow your business. You hear a lot in the media how lenders aren’t lending to small businesses, but this is not the case. The main problems faced when looking for business loans, that the companies don’t use a broker and try to do it themselves. This can be costly and time-consuming and often a company owner doesn’t see all the options that are available on the market.
There are tens of thousands of different types of loans on the market, with each loan (or product) suiting a variety of different circumstances. Whether you are looking for fast cash, starting a business, growing a business, implementing a strategy or buying assets – there are different loans and financial products that may suit your current situation better. With so many options it is sometimes hard to know where to begin.
There are also lots of Lenders on the market from High-St Banks, Challenger Banks, Online Banks, Local Banks and even Government Banks, such as the Development Banc of Wales. All lenders look for different criteria when lending and charge different interest rates, fees and conditions on lending.
So with this in mind, High Gear Finance has put together a small guide to help walk you through the different types of bank loans, the different lenders and what sort of interest rates and risk profiles lenders favour.
Please don’t forget, to save this hassle we are here to help. If you fill in an enquiry form we will contact you within 24 hours and help walk you through all the different types of Business Loans that are available.
Types of business loans
There are lots of different types of Business Loans available, however, the main two categories they fall under are Unsecured Loans and Secured Loans.
Unsecured Loans are generally up to the value of £250,000. The term is slightly misleading because it sounds like no guarantee needs to be given, but this is not the case. An Unsecured Loan simply means the business has no assets to guarantee the loan will be paid back and that the company director is not putting their personal home as a guarantee either. Unsecured loans are more expensive than secured loans and often lenders will not lend as much money. They are also heavily dependant on your credit rating. Click here if you want to check your personal or business credit ratings.
Also don’t think that if a company director has no assets, no lender will lend them money as this is not the case. There are loans available for people with no personal assets or have a bad credit rating. Get in touch today by filling out our form and allow us to match your company’s situation with the best funding available on the market.
Secured Loans are loans where the business or company directors, put an asset or assets, as a guarantee that the loan will be paid back. This does not mean that if the loan is not paid back they take your house the next day. It simply means that the lender has an option of an asset that will pay back the loan if the company doesn’t repay it.
With Secured loans there is no maximum, however, lending cannot exceed the value of the asset or assets. Meaning if the company owns a £1m property with no mortgage, a company can receive no more than £1m if they use the property as collateral. As businesses grow, loans can get a Debenture against a business. Meaning they can use a stake of the business as a guarantee against the loan amount.
Some loans offered by lenders are designed for speed – so that you can plug your cashflow issues very quickly. The fastest partner in our network closed a deal in 1 ½ hours, from enquiry to drawdown. The reason this clients deal was so fast is that they had all the documents ready that they needed for our lenders.
We have compiled a list of documents and instructions on how to complete them. Mostly they will need, copies of your company bank account statements, VAT Returns (If applicable), your last completed yearly returns, proof of ID and occasionally for some lenders cashflows & projections. Have a look at our templates provided as well as an instruction list on how to create or download these documents.
The quicker you are and getting these documents together, the quicker we can get you your money.
Short term business loans
Some loans are designed for the short term, with agreements between 3 months and 2 years. Term loans of more than 2 years would be considered medium or long term. If you're considering a loan for a very short term, it's also worth considering revolving credit facilities, VAT Loans or other business overdraft alternatives.
Loans for small SMEs and Start-up’s
There are loans for all businesses of all shapes and sizes. While some High St banks may struggle to lend money to businesses that don’t have two years of trading history, are only after a small amount, or just have a small turnover - there are other institutions who love that and specialise in these types of loans.
Business loans for bad credit
It is often a challenge to access finance if one of the company directors or the company has a bad credit rating. However, it is not impossible and is worth exploring. Everyone’s circumstances are different and sometimes a good explanation can help some lenders de-risk the investment. You might be surprised so please get in touch and let’s see if we can help your company.
With thousands of lenders in the market, it is hard to determine what lender is right for you. At High Gear Finance we are experts at making sure that we can match you with the best lender for your circumstances, from the whole market.
Saying this, however, we have pulled out some of the key types of lenders and compiled brief headlines on eligibility criteria, the application processes and average interest rates to go through.
Here’s a summary of what you can expect from different types of business lenders and what documents they will need:
- You need a strong Balance Sheet (More assets than liabilities)
- Accurate Cashflow Forecasts for how you will spend the money
- 6 months bank statements for the company and each of the directors
- VAT Returns for the last 1-2 years
- 2 years of trading history
- Assets, Liabilities and Expenditure form filled for all company directors
- Most times - directors need to be homeowners. EFGs are an exception.
- Personal Guarantees from Directors
- Usually, they will loan 25% of your annual turnover
- Cheapest interest rates on the market.
- Long process, funding can take often between 1-6 months before you may even know if you are approved or not.
- Similar to High St banks in terms of products and rates
- More flexible investment criteria – meaning they are open to more types of businesses.
- Faster application processes.
- Still require 6 months bank statements, Company Returns and VAT Returns.
- May require Cashflows and Financial Projections as well.
- May lend slightly higher amounts that High St banks, but not always the case.
- Independent lenders may not be banks however they are large and established organisations with plenty of cash to lend.
- Lend to a broader range of businesses
- Specialist by industries and sectors – meaning they are set up to understand those types of businesses.
- Fast applications
- A lot more flexible in terms of lending criteria
- More expensive than High Street Banks.
- May lend more than High Street banks.
- Focus on one or two types of lending only and usually only for a particular sector
- They are great if you are in that sector as they understand your business
- Highly specialised
- Costs can vary hugely depending on the sector and what companies in that sector can afford
- Very, very fast. Often funding available in 1-2 days
- Criteria are based on a case by case basis