How to get business loans in the UK? A step-by-step guide

Business Loans in the UK

Running a business requires commitment, hard work and, above all, money. Not until you have enough money can you hit the ground running despite a great business idea. Even if you have some money to invest in your business, you will likely hinge on external sources. For those who do not want to lose part of equity in their business or who do not necessarily need to raise money from investors, business loans in the UK will come in handy.

Although it seems a feasible and convenient option compared to raising money from investors, there are a lot of formalities you will have to fulfil to get the nod. This blog discusses useful tips on how you can get a business loan without a hitch. 

Can you get a business loan?

The first thing you need to figure out is that whether you can take out a business loan. Your business should be based in the UK and it must meet the turnover requirement as per your lender. However, a start-up can also apply for a business loan but you will have to turn in a business plan to ensure that your business has chances to survive. 

Your business plan should be in detail and specifically mention your target audience, how you will reach out to them, how much revenue you are expecting to generate and the timeframe for how soon you will reach your breakeven point. Your lender would also want to know whether you can promise to repay your debt when your business fails to pick up.

How to apply for a business loan

If you are looking to apply for a business loan, first, you need to decide whether you need a secured or unsecured business loan, how much you want to borrow and for how long. The next step is to compare business loans so you get them at the most competitive interest rates.

You can apply for these loans online by filling in the form and submitting the necessary documents. Your lender will check your personal credit score as well as your business credit score (especially if you own a limited liability company). 

The odds are that you will get certain complications while getting approval for your business loan. In this case, you will end up getting high-interest rates and might qualify for less than you need. To overcome these problems, you should try to consider a guarantor business loan

After the perusal of your credit score and your business situation, your lender will decide on interest rates, repayment lengths, and the lending sum. You will have to wait for some time unless your lender sends you an agreement comprising all these details. Read it thoroughly and then sign it. As you submit the signed agreement, you will get money directly into your bank account. 

Types of business loans in the UK?

There are, in particular, two types of business loans – secured and unsecured. Secured business loans are subject to collateral. You will have to back your business loans in the UK against a valuable asset, that a piece of land or equipment. These loans will let you borrow a larger sum at a lower interest rate and a longer repayment period. Even if your credit score is poor, you will be able to secure these loans at the lowest possible interest rates. However, bear in mind that you will lose your secured asset if you fail to keep up with payments. 

Unsecured business loans in the UK are not subject to any collateral. In order to secure these loans, you will need a good credit score. As far as it is about the lending sum, these loans offer a lower sum than secured business loans. Compared to secured business loans, unsecured business loans carry higher interest rates. 

Now the question is how to decide whether you should take out a secured or unsecured business loan:

Secured business loans are preferable when you do not need a very large sum. It depends on a lender how much they can offer to you when you do not have to secure your loan against collateral. Of course, you will have to do research to know how much you can borrow from a particular lender when you are to borrow a sum with or without security. In addition, you should ask the following questions yourself:

  • Why do you need a business loans in the UK?

The first thing is to determine why you want to take out business loans in the UK. Your purpose of funding will decide whether you need a smaller sum or a larger sum. 

  • How much do you want to borrow?

The next question you should ask yourself is how much you want to borrow. Of course, if you need a larger sum, you will have to seek a secured business loan. 

  • How long would you like the loan for?

Unsecured business loans have a smaller repayment length than secured business loans. This is normally not more than five years. If you are a start-up and you know it will not be possible to clear your dues on time, you should consider a longer repayment period, and the odds are your lender will seek security. 

Should you apply for a business loan directly or through a broker?

There is nothing wrong if you want to apply for a business loan directly with a lender. However, you will have to do some research, so you choose the best deal. If you are not sure about your business loan requirements or you cannot get into the hassle of applying for a loan, you should consult a business loan broker in the UK

They will assess your financial situation and business needs and then introduce you to the best lender that matches your profile. 

The bottom line

Before you get a business loan in the UK, you will have to determine the purpose of using your loan and do research to avail yourself of lower interest rates. 

Business loans can be risky whether they are secured or unsecured. You should carefully analyse your financial situation before using them.

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