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How Do Business Loans Work?

Photo by Dylan Gillis on Unsplash

If you are in a position to grow your business after an influx of customers, it may be that you do not have the funds to finance this growth. There are some big costs that come with expanding your business, whether it be buying new property such as an office or a warehouse, buying more bedding like goose down duvets to sell or hiring new staff in order to expand your team.

You may need some extra money in order to fund this growth and this is where a business loan can come in and help. More flexible than personal loans, with a business loan you can receive money to spend on your business, up to £15 million which you have to pay back over a certain amount of time.

Business loans are relatively straight forward and they do not force you to give up any equity in your business which an investor might ask for. It could be a good way to finance your business in the short term whilst you explore other financial options.

What is a business loan?

A business loan is a loan that can be taken out for commercial purposes in order to expand or help your business grow. These are for organisations rather than for individuals and they are usually paid back on a monthly basis.

Business loans have a huge range and can be between £1000 to millions of pounds; this can also be paid back between 1 to 25 years.

There are two types of business loans that you can get, one is a unsecured loan which means that you do not have to use any of business assets as security for the loan. If you have proven track record of repaying loans and clearly have the means to repay then you may be able to get this type of loan.

The other type of loan is a secured loan which means that the loan is secured against a business asset such as a property. If you fail to pay back your loan then the lender can sell it in order to get the money they are owed back. These loans tend to have a lower interest rates than unsecured loans because of the security involved.

What can you use business loans for?

You can use business loans for anything that will help you and your business. Some examples of this might include:

  • Hiring new staff
  • Purchasing a new building such as an office or a warehouse
  • Expanding your operation
  • Paying off existing debts
  • Buying new equipment
  • Purchasing new stock for your business

Which businesses can get a business loan?

There are no requirements that mean only certain businesses can get a business loan, however the type of business you are might mean you cannot access all the options for business loans.

For example, government start up loans are only available to new businesses, whilst payday loans that may let you for example borrow £300 in the UK and cash advance loans might require you to have been trading for a certain amount of time.

How to pick the best business loan for you

Picking the best loan for you is dependent on a number of factors; you will need to work out exactly how much you want to borrow because you do not want to have to pay back more than you needed or not have enough to do the improvements you want.

You also will have to decide how long it is you want the loan for; the type of loan and make sure that you are fully eligible to get that type of loan.

A business loan could help your business reach the next stage of growth without having to give up equity in your company.

Written by Marcus Richards


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