Introduction
If you are confused about the different loan term lengths, then you’re in the right place.
Trying to navigate through the different types of loans and the terms of each one and what that means can be very confusing.
In this guide, you’ll find out everything you need to know about the different loan terms and what they mean for you, plus which one might be best for your business.
Let’s dive in!
What’s in this guide?
FAQ
What are business loan terms?
A business loan term refers to the length of time that you will be borrowing your loan for.
Not only does this stipulate how many months or years you will have to pay back your loan, but it will also affect how much your repayments will be on a monthly basis.
A short-term loan means you are only borrowing for a short amount of time, which means your repayments will be high.
On the other hand, a long-term loan will mean that you could borrow the money for years, so your repayments will likely be very low.
What is a short-term loan?
For your business, a short-term business loan is a quick injection of cash that can help launch your business to the next level.
You could use this for anything from equipment to new workers.
A short-term loan allows you to pay back this money quicker instead of having to pay back the money over a long series of months or years.
Sometimes, a short-term loan could be as little as three months in length.
Your repayment amounts might be high, but you might be able to pay it off in a few months which will let your budget more manageable.
What is a long-term loan?
A long-term loan, on the other hand, is usually paid back over many years which could be as much as 20 years or as little as three.
This gives you an opportunity to have much lower repayments to payback, which can help you regarding keeping your cash flow consistent and if you have a fixed rate loan, these types of payments won’t change over the length of your contract.
You can usually get loan term loans from most banks and alternative financial providers, while peer-to-peer platforms often encourage shorter-term loans to provide a quicker return for investors.
Which term loan would be best for me?
Many different factors might go into deciding which length of loan might be best for you and your company.
For instance, if you want to borrow a considerable amount of money could mean that it would make more sense to acquire it for a long time, as you won’t have to pay out large sums of money in a short period.
Or, you could only require a small loan that could be for £1,000 for instance, which you could pay back in a couple of months without needing more time.
What are my loan options?
What is an unsecured loan?
An unsecured business loan is a loan which you do not need to secure.
In other words, while some loans will require security like your home in case you don’t make payments, unsecured loans don’t.
However, because of this you usually are only able to borrow a smaller amount and for a shorter period, to lower the risk to the lender.
What is a secured loan?
A secured loan is when you take out a business loan, and you utilise your business assets to put up in the case of non-payment so the bank, for example, can take your property if you don’t make your repayments.
You can often borrow a much higher amount than unsecured loans, plus your repayments might be lower, and it’s better for those with a poor credit history.
Take a look at your options here.
What’s the difference between fixed and variable loans?
Let’s start with a fixed rate loan.
A fixed rate loan means that your monthly repayments will be set for a specific term, usually for the length of the contract whether that is for five years or twenty.
A variable rate loan means that your repayments would fluctuate, often depending on the market rate.
This can mean saving on your repayments.
Though it might be hard to budget when you’re unsure what your costs will be, as they are unpredictable.
Top tips
- Make sure that you can make repayments
- Compare all of your options
- Does your business need this amount?
- Check that your business has the health to sustain this loan
Repayments
Firstly, you need to make sure that you can make the repayments required for this loan.
For instance, although you may only be making repayments for a short amount of time like a year or six months, your repayment amounts will be a lot higher than with standard lengthy loans.
Or, you could opt for a large loan with a long-term, which could see your repayments remaining low as you could borrow the funds for up to ten years for instance.
Compare
Now you need to compare all of your options.
Luckily, since the financial crisis, there are far more lenders out there than ever before, primarily since there was a gap in the market when banks stopped lending to businesses as freely.
Alternative finance providers have stepped in where banks might reject your application, giving you another option to consider.
There is also peer-to-peer lending, which is a relatively new concept which means that businesses will borrow money from typical citizens through a lending platform.
Using these platforms, millions of pounds have been lent by thousands of average people to startups and established businesses alike over the UK.
Finally, you could consider whether a government grant or loan might be your best option.
In short, the government could lend you up to £25,000 at a fixed interest rate if a smaller loan makes more sense.
Amount
Next, you need to decide whether your company needs this amount of funding.
It can seem like an attractive offer to be able to borrow up to £10,000,000, but is it necessary?
Some companies end up harming themselves by trying to borrow too much; either they are rejected, or they end up putting themselves in an awkward position by not being able to make repayments.
Health
Finally, check that your business has the health to sustain this loan.
Top 10 business loan providers
1. Boost Capital
Type: Alternative Finance Provider
Loan amount: £3,000 – £500,000
Typical APR: 1.5% – 2.5% monthly APR
Loan term: 4 to 18 months
Boost Capital is a highly recommended alternative finance provider in the UK, with many customers giving this lender five stars on trusted websites such as Trustpilot.
They offer fast funding, with minimal paperwork, approval in 24 hours and access to your funds in around two days.
Representative: Borrow £10,000 for 12 months at 47.9% representative APR. Interest rate of 36.74% p.a. (fixed). Total amount payable is £12,100.
Company rating on Trustpilot: 5 / 5
2. Capify
Type: Alternative Finance Provider
Loan amount: £3,500 – £500,000
Typical APR: 67.89% APR
Loan term: 6 to 10 months
Capify is another highly rated lender, who has been around since 2008 and they have helped thousands of business owners to grow and sustain their business.
Focused on small to medium enterprises, they aim to give you a decision within 60 seconds and solutions tailored to your business.
Representative: Borrow £24,000 for 12 months at 67.89% representative APR. Total amount payable is £29,472.
Company rating on Trustpilot: 5 / 5
3. Funding Circle
Type: Peer-to-Peer Lender
Loan amount: £5,000 – £500,000
Typical APR: Rates start from 4.5% per year AER
Loan term: 6 months to 5 years
Funding Circle is one of the peer-to-peer lenders that have been sprouting up around the UK in the last few years.
With a peer-to-peer platform, the lenders are regular citizens that want to help their savings grow by investing in UK businesses.
For businesses, this means low AER and only a couple of extra fees.
Representative: Borrow £20,000 for 12 months with fixed monthly payments of £1,752 a month, with a completion fee of 2.5% and interest of around £526. Total amount payable is £21,026.
Company rating on Trustpilot: 5 / 5
4. Shawbrook Bank
Type: Bank
Loan amount: £250,000 to £25 million
Typical APR: 0% to 19.9% APR
Loan term: Bespoke repayments
Shawbrook Bank offers their business customers a range of services tailored to their companies, like asset finance, working capital solutions, the point of sale finance and structured finance, as well as commercial mortgages too.
This means that for startup businesses you could finance for the road ahead with equipment and salaries, or even established companies can benefit from more substantial amounts to help you fund expansions.
Company rating on Trustpilot: 5 / 5
5. Government Startup Loan
Type: Government Loan
Loan amount: £500 – £25,000
Interest: Fixed 6% interest p.a.
Loan term: 1 year to 5 years
Government loans are loans that are funded by government-backed organisations, who usually offer either regional or national businesses different loans depending on their location.
With this loan, in particular, it is aimed at startups less than 24 months old who could benefit from not only finance but mentoring, to help your business grow and thrive.
Representative: Borrow £20,000 for 12 months with fixed monthly payments of £1,721.33 a month, with interest of around £655.94. Total amount payable is £20,655.94.
Company rating on Trustpilot: 5 / 5
6. Spotcap
Type: Alternative Finance Provider
Loan amount: Up to £250,000
Interest: 22.80%, which includes both interest and fee.
Loan term: 1 month to 24 months
Spotcap is a highly regarded alternative finance provider, who since their launch in 2014, has raised £90 million globally, 500 active partners and over 1000 customers.
Although they are a relatively young provider, they have already become a fast favourite according to their five star Trustpilot rating.
Representative: If you borrow £100,000 over 12 months at a representative rate of 24.2% APR, with an interest rate of 1.40% fixed, you will pay 12 monthly instalments of £9,111 which would mean a total repayment of £109,332.
Company rating on Trustpilot: 5 / 5
7. iwoca
Type: Alternative Finance Provider
Loan amount: £1,000 – £150,000
APR: 49% representative APR
Loan term: 0 to 6 months
iwoca prides itself on providing their customers with fair decisions, lightning-fast applications, outstanding flexibility and service.
Thousands of companies have borrowed £500 million, and they could be an excellent fit for many different businesses regardless of size.
Representative: Borrow £10,000 for 12 months at 49% representative APR. Interest rate of 40% p.a. (fixed). Total amount repayable is £12,165. Actual rate may vary based on circumstances.
Company rating on Trustpilot: 5 / 5
8. Ezbob
Type: A lending platform for banks and financial institutions
Loan amount: £1,000 – £120,000
APR: 38.9% APR
Loan term: 1 to 12 months
Ezbob is bringing a change to the way that banks and other financial institutions lend to consumers and small to medium enterprises.
They act as a middleman between banks and customers, so they can offer the excellent rates that you’d typically find when looking to borrow from a bank, but their exceptional customer service.
Representative: Borrowing £50,000 over 12 months would mean you would be repaying £58,873. These payments would be £4,166 a month plus interest on your remaining balance.
Company rating on Trustpilot: 5 / 5
9. Fleximize
Type: Alternative Finance Provider
Loan amount: £5,000 to £500,000
APR: 46.8% APR
Loan term: 1 – 48 Months
Fleximize was named best business finance provider by the British Bank Awards in 2018.
They claim to allow your business to grow at the pace it needs to, by offering relatively long borrowing terms of up to four years, and up to half a million pounds.
This could be a perfect fit for companies looking to purchase their property or vehicles.
Representative: For loans of £25,000 or below: If you borrow £12,500 over 15 months at a Representative rate of 46.8% APR and an annual interest rate of 39.0% (fixed), you will pay 15 monthly instalments of £1,066.11. The total charge for credit will be £3,491.65, and the total amount payable will be £15,991.65.
Company rating on Trustpilot: 5 / 5
10. Danske Bank
Type: A lending platform for banks and financial institutions
Loan amount: No minimum or maximum
APR: Interest is calculated daily and applied monthly.
Loan term: 12 months
Danske Bank, as the name suggests, is a subsidiary of Danske Bank Group which originates from Denmark.
They can offer their customers a bridging loan, which doesn’t have a minimum or maximum amount and can be used for things such as constructing premises, renovations or letting you close a deal without having to wait for another transaction.
Repayment is usually made in a lump sum at the end of your term.
Company rating on Trustpilot: 4 / 5
This list of the top ten business loan providers mainly takes into consideration the companies customer reputation, how much your business can borrow and the interest your lender will charge you.
Conclusion
In conclusion, deciding which length of term loan might be best for you hinges on a few different things such as how much you can pay back over what amount of time, and the other general factors that go into a loan.
If you have any more questions, check out the ExpertSure guides to find out more about your finances and options as a business, or you could fill out the form at the top of the page to see what’s on offer.
