5 Types of Business Loans Available in the UK
Business loans are a common financial tool for some businesses. However, if you are not careful when borrowing, you may end up paying more than you borrow. There are five types of business loans available in the UK. Let’s look at the benefits and disadvantages of each one. Choosing a suitable loan depends on your business’ needs and circumstances.
Unsecured business loans
Unsecured business loans are available to a wide range of business types in the UK. While the criteria for eligibility differ from lender to lender, most require that an applicant be at least 18 years old and that the business is registered in the UK. Furthermore, it is important to note that some lenders may require a personal guarantee from the business owner. This can make the process of obtaining an unsecured business loan more complicated.
Unsecured business loans are ideal for start-ups and small businesses. Applying for one can take as little as a couple of days. In addition, unsecured business loans have lower upfront costs than other types of finance. They can also be arranged quickly and easily, and they can be transferred into a business bank account within days.
Another benefit of an unsecured business loan is that it can be paid back over a certain period of time. Whether you choose to make regular repayments or pay it in full over the period of the loan, it is important that you complete the repayment by the end of the term. You will also be required to pay interest, which will be fixed at the time of the loan.
Lines of credit
A business line of credit can help you finance your business’s expenses – such as payroll invoices or unexpected expenses – without having to take out a traditional business loan. These lines of credit usually have set repayment terms, from 12 to 24 months, but some can be renewed yearly.
The process for obtaining a business line of credit can be difficult, however. It requires a lot of personal information and revenue reports from your business. You might want to consider alternative forms of funding that require less paperwork. In addition, make sure you review the fine print before applying for any new line of credit. There are plenty of options for business owners to look into before making a final decision. However, you should be sure to read the fine print and make sure you qualify for any new business line of credit.
A business line of credit is often used for short-term needs and is a good source of working capital. It should be used responsibly, however, and only for expenses that will be paid off within a short period of time. In addition, it helps your business build credit and reduce interest paid on borrowed funds.
Working capital loans
Working capital loans can provide your business with the funds it needs to keep operating. These loans are usually made to small businesses and are secured against the business owner’s personal credit. As such, if the business owner fails to make the monthly payments or defaults on the loan, his or her credit score could suffer. Nevertheless, working capital loans are the ideal solution for companies with temporary, short-term capital needs.
Applying for a working capital loan is simple. Before applying, consider how much you need and find a lender that will fit your business’ needs. Generally, a business owner will need to submit a business plan and three years’ worth of tax returns. Other requirements might include business legal documents and three months’ bank statements.
The SBA has partnered with banks to offer small businesses a range of working capital loans. Although it does require higher qualification standards than many traditional lenders, SBA loans are ideal for small businesses that need up to $5 million. They also have flexible payback schedules and lower annual interest rates than most conventional loans.
Invoice financing is an excellent way for businesses to access a short-term line of credit. This type of financing relies on invoices as collateral and can provide funding in as little as a few days. However, it’s important to understand that invoice financing can only be used by businesses that have strong accounts receivable.
The process of applying for invoice finance for business loans is simple. First, your business must fill out an application. You may need to present some form of identification (such as a driver’s license) and other documents. Unlike other types of business loans, invoice financing is usually easier to qualify for.
When applying for invoice finance, make sure to read the terms of the contract carefully. It will include information about how to use the funding, how to apply for cash, and real-time reporting. Typically, these contracts last for six months or a year. Invoice financing companies charge a credit management fee in addition to the interest on the funds. The fee can be between 0.5% and 2% of your turnover.