Do you have a brilliant business idea, but do not have enough financial resources to start it? UK residents who have sound business concepts can easily find financial backing through small business loans. You can borrow up to 500,000 British pounds to start your business rolling. However, knowing what kind of loan you must take can help you consider several options and come up with a wise decision.
Here are the things that you must know about borrowing money to start or add capital to your business in the UK.
Type of Small Business Loans
There are two types of loans that you can take for your business. You can opt for a short-term loan or a medium to long-term investment.
A short term loan is an excellent option for small businesses that are having financial difficulties and may need cash to cover all its expenses. You might not have time to wait for a bank to approve your application. For speedy approval and same-day release of the money that you want to borrow, you can get a business credit card or ask your bank to let you withdraw money from the business bank account beyond the amount that your account has. Using these short term solutions can help you continue doing business and stay afloat until your company can recover financially.
Before you can borrow money using any of these options, you must show the lenders that your business assets can cover for the loan amount you applied. You can get as high as 50,000 pounds without collateral if your business performance meets the lender’s criteria.
There are also finance companies that would purchase the materials you need and lease them to your business. You rent the equipment instead of borrowing money from the lender to procure them. One advantage of this arrangement is your business is not affected by the depreciation of these materials.
You can also check the P2P lending or person to person lending. You can seek financing from another person or group of persons that lend money to business owners that need a boost to their capital.
Medium to Long Term Loans
When you are planning to start a business, you need a considerable amount of money for capital and keeping your business going until it can earn profits. The usual length of time for repayment is seven years. Although you can borrow an amount that is several times higher than the short-term credit, you can spread the payment over several years. This arrangement makes the monthly installments easy to pay.
Medium to Long-Term small business loans has several advantages, though. One advantage is the lower repayment. The overall interest right can be higher, but because the repayment period is long, it has become hardly noticeable.
Another advantage of the medium to long term loans is that you can make long-term plans for your business. Having enough funds to finance your business venture for several years gives you enough time to make everything work and enable your business to make some profit. By observing proper budgeting, the money you borrowed to start the operations can go a long way.
While extended repayment plan and high-interest rate can be a set- back when getting a medium to a long-term loan, it can still provide a start-up business the time and financial capability to grow.
Business Account Overdraft
For a business that is already operational, getting a business account overdraft can provide short-term solutions to your financial needs. With this kind of small business loan, a business owner can withdraw an amount beyond what is actually in the business account. He must repay it within 12 months. Then, he can borrow again if there is a need. If the business is now doing well, he can stop borrowing using this scheme.
Evergreen Loan or Credit Cards
Businesses can use credit cards to provide an additional source of funds for the company to operate well and grow. Although there is no interest in the beginning, it can cost high in terms of interest after the free period.
Several trusted financial institutions in the UK provide small business loans, and they charge low-interest rates. One bank can lend money up to 1,000,000 British pounds. After the bank approves the loan, the fund is released immediately. These financial institutions also have a long-term repayment plan. If the term is ten years, a borrower must make sure he pays off everything in the 10th year. Early repayment of debts is against the policy. The bank can penalize a client that pays in advance.
If you own a business that requires more capital for it to work seamlessly, getting a small business loan in the UK is an excellent option. As long as you observe the terms and conditions and make payments on time, you can get all the financial help you need to grow your business.