Despite the many challenges involved in running a small business, it is also an exciting time. There’s so much room for potential, and different aspects of your industry to explore in your business’ development. However, if you’re to drive your business forward and ensure a tangible presence in your local area, raising capital is an absolute must.
One way of achieving your short and long-term goals is by applying for a Small Business Loan. So to help you make an informed decision, here’s what you need to know about Small Business Loans.
What should I do before applying for a small business loan?
Before you decide to apply for a Small Business Loan, check your personal and business credit scores so you have a greater insight into where you stand financially. This can be achieved by generating a credit report with one of the UK’s leading credit agencies (Experian, Equifax, Callcredit and Noddle) which will show you whether there are any issues affecting your score, such as unresolved debt, recent and past CCJs, accelerated payment notices (APNs), late payments, opening too many credit cards or your history of paying off debt on time.
Will I need to offer collateral?
This depends on whether you wish to apply for a Secured or Unsecured Small Business Loan. Agreements that are secured require you to present assets such as equipment, machinery, vehicles or property that aren’t subject to any existing financial arrangements as collateral. Although this reduces the risk to the lender, it does mean that your assets could be repossessed should your business fall behind in the repayment scheme.
Meanwhile, if you aren’t a homeowner or your business doesn’t contain any valuable assets at present, applying for an Unsecured Business Loan might be more suitable. However, because Unsecured Small Business Loans do not require you to present any of your personal or business assets as collateral, the lender is exposed to a greater degree of risk. As a result, Unsecured Business Loans often feature stricter application requirements and this may affect how much lenders are willing to offer. But if you’re looking to boost a lender’s confidence in your business, you could offer them a Personal Guarantee.
What can a Small Business Loan be used for?
Maintaining a strong, reliable rate of growth in your small business is a vital responsibility. Although you may have no shortage of ideas for where you want to take your business next, achieving your short and long-term goals can be tricky if you lack the necessary funds.
Fortunately, Small Business Loans can be used for a wide variety of purposes since they usually don’t feature any usage restriction. This means that you can apply for a Small Business Loan whether you’re considering opening another branch, buying into a franchise, extending your premises, carrying out refurbishments, purchasing new equipment or supporting any other profit-generating projects.
How much can I borrow with a Small Business Loan?
If you know what is required to drive your business forward, then you will also need to be fully aware of how much it’s going to cost. So as well as developing a step-by-step plan to accomplish your goals, calculating the overall cost requirements will enable you to decide which type of Small Business Loan most suits your needs. With an Unsecured Loan, your business could borrow between £5,000-£250,000. However, with a Secured agreement, you could instead borrow a lump sum ranging from £5,000- £1,000,000, due to the additional security presented in the form of assets. In addition, both options offer terms extending up to 60 months, during which time you’ll be required to make fixed monthly repayments, plus interest.
What will I need to include with my application?
As well as permitting lenders to review your personal and business credit profiles, you’ll also need to provide a variety of essential documents with your application. Along with proof of your identity, these may include your business plan, personal background, recent and past bank statements, cashflow forecasts, profit and loss statements, collateral documentation, income tax returns and any relevant legal documents. This information allows lenders to form a comprehensive understanding of your financial situation and how well your business is performing, letting them know whether your business has the means to repay the agreement on time.
Thinking about applying for a Small Business Loan?
Although you may a have strong vision for your business and a well thought out strategy for realising your goals, you also need to ensure that you have access to sufficient amounts of capital. As a small business owner, this can prove tricky, especially with many financial institutions turning their attention towards bigger businesses. However, you still have plenty of options available, providing you know where to look.