If you’re looking to expand or grow your business, small business loans are a fantastic option. But with so many different products available, finding the loan that best suits your business can be often a confusing and time-consuming process.
Understanding how small business loans work can be crucial for helping you make informed financial decisions. In this article, we’ll explore how small business loans work – including the different types of small business loans available in the UK, how much you can borrow, and what you should consider before you apply.
What is a small business loan?
Small business loans are designed to help business owners start, expand or operate their business. Whether you want to move into a new office space, grow your team or simply purchase new equipment, small business loans often provide you with the freedom to use the funding however you want.
There are various different ways you can get a small business loan. From banks to online lenders, providers give you a lump sum or line of credit, and you’ll pay it back over a specific length of time with interest.
Loan terms and interest rates can vary depending on the lender, the loan type and amount you’re requesting, plus your business’s credit score. Below, we’ll delve deeper into how small business loans work.
What are the different types of business loan?
The two most common types of small business loans you’ll find are secured and unsecured loans.
Secured loans
A secure business loan works by you offering something you own, such as property or stocks, to act as security for the loan. It means that if you’re unable to repay the loan in full for any reason, the lender can use the asset to get their money back. Secured loans often have lower interest rates compared to unsecured loans and allow you to borrow more.
Unsecured loans
Unsecured loans don’t require you to provide security for the loan, meaning your assets won’t be at risk. However, in many cases, it will involve signing a personal guarantee – a legal document which says you’ll repay the loan in full yourself even if your business can’t. Unsecured loans generally have higher interest rates and longer terms of repayment.
How much can you borrow with a small business loan?
How much you can borrow with a small business loan depends on a range of different factors. The type of loan, the loan provider and your business’s credit history can influence how much you’re able to apply for.
It’s worth researching different options to know which is best for the needs of your business. Websites will often have tools that let you see how much you might be able to borrow based on any details you’re asked to provide, without it affecting your credit score.
What to do before you apply
Work out how much you’ll borrow, and how you’ll use the funds
Do you want to buy some new office equipment? Or hire more people? Having a clear plan of the exact sum of money you want to loan, and how you’ll use it, will help you determine what type of loan and which lender you should use.
Know how much you can repay safely
A small business loan could be great for your business – but only if it makes financial sense. It’s essential that you consider the length of time you’ll be repaying a loan and at what interest. It will mean you can avoid any problems in future.
Decide which kind of loan to apply for
From secured to unsecured, fixed-term to variable interest rates, and short-term or long-term, there are a huge range of different loans available to you as a business owner. It depends on your business goals which is the right option for you – but it’s worth researching all options to help you decide.
Check terms and conditions
Nobody likes nasty surprises, so make sure you carefully read through the terms and conditions of any loans you apply. Be aware of any additional charges in the small print, such as administration and application fees. And make sure to find out if you’ll face early repayment charges if you decide to pay your loan off sooner than you initially agreed.
Gather key documents and submit your application
Once you’ve done everything else, you’ll be ready to submit your application. But before you do, make sure you have all the paperwork you need, including bank statements. Applications will usually require you to enter your business name, your desired amount, business tax ID and information about how the loan will be used.
Apply for your small business loan today
If you’re ready to apply for a small business loan, Funding Triangle can help. We provide unsecured loans of £10,000 to £500,000 with interest from 4.8%.
Apply now and get a personalised quote without it affecting your credit score. Once complete, you can receive a same-day decision and get the funds you require within 24-48 hours.
