If you’re a business owner looking for a leg up to grow your business, you may explore a business loan. The process for applying for business finance is quite different and typically, a lot more involved and lengthier than applying for a personal or home loan. We’ve put together a comprehensive guide on everything you need to know about business loans so you can go into this process feeling informed and prepared.
What is a business loan?
Let’s start with the basics. A business loan is a loan intended specifically for business purposes. This loan can be to create, manage or build a business or even to purchase an established business.
Business loans can vary in the amount a lender is willing to offer, the term of the loan. Interest rates and type, as well as any associated fees. These loans can be fixed or variable and secured or unsecured.
How does a business loan work?
Like many other types of loans, a business loan involves borrowing an established amount from a lender and entering into an agreement where you accrue interest on the amount borrowed and make regular repayments over the term of your loan.
A business loan can be used to:
- Help you start a business
- Help you grow a business
- Assist with cashflow management
- Purchase a vehicle or equipment for business purposes
If you’re considering business finance to purchase an asset, take a look at our blog on asset finance .
How do I get a business loan?
Before applying for your loan, it’s important you understand your primary objective for obtaining finance as this is one of the first questions a lender will ask you.
From here, you should be working out the amount you need to borrow. If you’re using finance to purchase a particular type of asset or vehicle, figuring out how much you need is often straightforward. However, if you’re accessing finance to grow your business or to assist with cashflow, knowing how much you need to borrow can be a little more challenging to ascertain.
Tip: While there may be an amount you would like to borrow, make sure you do the sums beforehand to ensure you can comfortably make these repayments.
Now that you know what you want to borrow money for and some idea of how much you would like to borrow, it’s worth speaking with a commercial broker. They can assist you with the steps we detail throughout this piece.
Being prepared with detailed financial documents and a business plan can assist the lender in making a decision sooner. When reviewing finance applications, lenders are essentially reviewing the associated risks. Establishing you have an understanding of your business finances and a plan for what you would like to achieve shows a lender you’re prepared, and you’ve done your research. They want to see financial stability and a plan for how you plan to maintain or grow your revenue.
From here, it’s worth considering whether you will be applying for secured finance or unsecured finance and whether you would like a fixed or variable rate loan. A variable rate may suit you best if you’re confident you can repay the loan even if rates increase. A fixed interest rate may be able to help you manage your cash flow better by providing certainty and predictability with your repayments.
It is also worth understanding the fees and charges associated with your loan.
Can I get a business loan to purchase an existing business?
You can use finance to purchase an existing business. However, this may not be a business loan as such. You may have to apply for unsecured personal finance, or potentially, even secured finance using an asset like your home.
In this instance, it’s best to speak with a commercial broker sooner rather than later.
Can I get a business loan if I have bad credit?
Bad Credit Business Loans do exist and may be accessed by business owners with poor credit scores or defaults. However, due to the risks associated, often in these circumstances, you will most likely have to pay a higher interest rate, the conditions may be less desirable and there may be additional fees that are sometimes hidden.
If you’re in a position where you think you may have bad credit or you have defaulted, it’s worth speaking with a commercial broker. Unfortunately, there are many bad credit loans that have substantially high interest rates and expect large repayments which may provide initial relief, but in the long term, these may not be manageable.
Can I get a business loan without collateral?
If you’re in a position where you’re trying to obtain business finance without substantial assets, you may be able to apply for unsecured finance. Keep in mind that typically, interest rates are higher for unsecured loans.
When applying for unsecured finance, lenders will review your credit history, cash flow and your perceived ability to repay the loan. You can also consider personal guarantees meaning your personal assets can be used to cover the outstanding debt if you are unable to repay the loan amount.
We’ve explored some of the commonly asked questions around business loans, but if you still have more questions, please add your questions below or feel free to get in touch for a free meeting with one of our commercial brokers.