If you’re looking for a way to expand your business and to take it to the next level, there’s usually the need for significant investment. When you don’t have the funds to hand, one solution that’s available is a business loan.
We’re going to take a look at what business loans are, how they work and what you’ll need to secure one. If you’re looking for funding and aren’t sure of what steps to take next, read on and let us guide you through.
What is a business loan?
A business loan is a loan that is taken out to assist with your business. It could be that you’re looking to expand, want to provide a temporary cashflow boost or dealing with a one-off bill/repair. While some may explore personal loans to assist with business needs, the reality is that this is usually excluded in the terms and conditions so a business loan is the best way forwards.
Business loans can be found in numerous places. From traditional high street banks to new fintech companies, there has never been as much choice as there is today. Whichever organisation you choose, once your loan is approved, you’ll then need to pay back the money in instalments with interest added.
The workings of a business loan
You’ll need to tell the potential lender what you’re seeking the funds for when you first apply. Just as you’d have to do with a personal loan, you’ll need to prove your level of income and you’ll need to demonstrate your ability to repay.
You will be able to choose the term of the loan. Generally, the longer the period it is taken over, the lower the monthly payments. However, if you opt for a longer period, you’ll also find that you’re paying more in interest.
Types of business loans
There are two main types of business loan that you’ll come across:
- Unsecured loan – this is when funds are borrowed and are not secured against any assets
- Secured loan – your business uses assets as security. If you fail to repay, the lender is able to sell these assets to recover their money
What security is needed will depend upon how your company is set up. If you act as a sole trader, a lender is able to come after your personal possessions should you fail to pay. As a limited company, your personal possessions are protected but this is when lenders are more likely to seek security or director guarantees.
The information and documents needed to apply
The lender will want to know as much about the financial standing of you and your business as possible. When it comes to submitting your application it’s likely that you’ll need the following:
- Business bank statements
- Business plan
- Tax returns (personal and business)
- Incorporation certificate (if limited)
- Proof of address and ID
Having these documents ready before you apply will make the process faster and smoother, without the need for a constant back and forth.
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