Introduction
Sometimes, you might need a small business loan to expand your company.
Or, you might need it to purchase new equipment to make your existing business run better.
This guide will tell you what you need to know about small business loans, including what they are, when they might be required and the top five business loan providers.
What’s in this guide?
Let’s dive in and take a closer look!
Top 5 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
The top five business loan providers take into consideration their customer reputation, the amount you can borrow and the typical APR or interest rates, to ensure that you’ll be getting the best deals for you and your company.
Now, let’s take a look at the handy FAQs below.
FAQ
What are small business loans?
In short, it’s when you ask a lender like a bank to loan you some money so you can pay for things like more employees – in return, you will pay back this money often over a set period.
You might also have to pay a certain amount of interest.
Interest is when you have to pay back a little extra, as a sort of payment for borrowing that amount of money.
Often, a business loan can come from many different places, so as a business owner you should always try and consider as many possible solutions as possible to find the best deal.
When would I need a business loan?
It could be because you don’t have as many finances for carrying out day-to-day tasks such as paying salaries, even though you are in profit.
It depends entirely on your situation, which dictates how much of a loan you need, where you get it from and your repayment terms.
Let’s take a look at the different types now.
What is a short-term business 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.
This could be for depositing an office space, hiring some new workers or purchasing things such as a business phone system or other office supplies.
And, instead of making repayments for years, a short-term loan allows you to pay back this money quicker.
For instance, this could be over six months.
So while your repayment amounts might be high, you might be able to pay it off in a few months which will let your budget easier.
These types of loans could be from a bank, peer-to-peer lenders or even alternative lenders; but more about that below.
What is a secured business 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.
In other words, so the bank or lender can take your property if you don’t make your repayments.
This isn’t usually the preferred loan type of many businesses, as you can only usually borrow for up to ten years and there might be upfront costs like administration fees.
However, the positives are that 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.
Do all loans require collateral?
Not all loans require you to put up security in the event that you can’t pay back your loan.
While secure business loans may require for you to put up assets such as your home or car for instance, unsecured loans allow you to borrow without putting up security.
The downside to unsecured loans is that you can usually borrow less, as your lender won’t have a guarantee that they will make back their money regardless.
Where can I get business loans from?
✔ Banks have tightened their grip on their funds, so it’s a lot harder for small businesses to get a business loan.
If a bank is concerned about whether or not you can pay back the loan, they may take collateral like your home if you can’t pay it back, as security. Or, a personal guarantee even if your business goes bust to pay back the money.
✔ Government schemes offer specific initiatives that guarantee unsecured loans made by banks or non-profit lenders to small businesses, which helps many of the small businesses clear the hurdles that usually stand in the way of acquiring financial help.
✔ Peer-to-Peer lenders enable investors and borrowers to be connected easily, without the need for banks. Interest rates are often cheaper than when you get your loan from a bank.
But, there are often fees attached, and because peer-to-peer platforms usually don’t have the facilities that banks do, they typically require you to have a history of trading that spans several years.
✔ Alternative finance providers are companies that have taken the place of many banks for things like business loans, with some of them like Ezbob offering short-term investments of up to £120k.
How much can I borrow?
These lenders can often offer loans that range between £1,000 and £1 million.
You should consider, however, at what point a loan amount is unnecessary.
In other words, you should only borrow what you need to keep your finances in order.
But you also don’t want to have to return to a lender in the future.
What do I do if I have bad credit?
Unfortunately, more often than not, your local bank will often reject your application if you have a poor credit score.
But, it is important to remember that you should still try your bank first, mainly if your relationship is excellent.
Why?
Banks still do generally offer the best rates, plus they often either don’t have arrangement fees, or they are very low.
Plus, if you can put something up for collateral like your home, you may be able to get the best rates.
In the UK, you might also be able to find government schemes that aim to provide more finance to SME businesses.
Take a look at the government website to find out more.
Five top tips
✔ Consider all of your options
✔ Don’t be mislead by exciting numbers
✔ Leverage your assets
✔ Be honest with your lenders
✔ Ask for advice
First of all, you need to consider all your options.
This means taking a look at as many lenders as possible, to ensure that you are getting the best deal for you and your business.
Then, don’t be mislead by any impressive numbers.
Sometimes you’ll see a loan that offers you excellent interest rate figures, but they don’t necessarily tell you the whole story.
This is why you need to make sure that you check every aspect of the loan, not just the flashy numbers.
It can be very beneficial for businesses to free up certain assets to be able to use funds for future investments.
One key asset, for example, invoices which can be sold for a price before your customers settle them.
Things like this can be beneficial when cash flow becomes a dangerous problem.
Being honest with your lenders is essential when it comes to applying for a loan.
There is very, very little you can gain from lying or twisting the truth to suit your needs, primarily as it can affect whether you get a loan at all in the end.
Finally, there is the issue of getting the right advice, especially at critical moments.
There are times in business when leaders need to rely on their instincts and knowledge, but business loans are not one of those times.
Conclusion
In conclusion, there are so many options available for startups and smaller companies, including banks, alternative finance providers and peer-to-peer lenders, to name a few.
Take a look at the ExpertSure guides to find out more about business loans, which can help launch your company into profitability by funding your expansions and the equipment you need.
