HOW DOES IT WORK?
Lenders will provide you with a lump sum of money plus an additional set interest rate. The interest rate is the cost of borrowing the capital. You then repay the funds and interest over an agreed period of time.
HOW MUCH DOES IT COST?
At this moment in time most lenders will typically provide you with up to a maximum of 25% of your annual revenue, with loans ranging from £10,000 up to £1,000,000+. Usually, the interest rate can range from 7% to 30%, and terms can last from 1-10 years.
Repayments tend to be taken on a monthly basis by direct debit.
Matthew owns a fashion brand. He wants to manufacture a new tracksuit range. He’s currently been doing t-shirts and hoodies, however, he sees a great opportunity to expand. Matthew has already put some designs on his website, has had a few pre-orders and is feeling confident.
Matthew applies for a £20,000 loan over 3 years from a lender with an interest rate of 10%. His monthly repayments over the 3 years will be £641.30 and in total, Matthew will repay £23,086.94.
WHAT BUSINESS LOAN LENDERS ARE LOOKING FOR
Your business must have:
- been trading for at least 1+ years, with up-to-date filed accounts reported to Companies House.
- at least 10% profitability. This is to show that you can afford the monthly repayments.
- a plan of how you are going to use the money and cash flow forecast to show how the business will perform moving forward.
Pro tip: Did you know that you can file your accounts before they are due and this will boost your business credit score?
WHAT WE LOVE ABOUT THE BUSINESS LOAN
- Out of any of the business funding options, it is loans that provide you with the largest amount of capital upfront - up to 25% of your turnover. If you need to borrow a larger amount of money, the Business Loan is your friend.
- Loan lenders don’t have requirements on what you use the funds for. Therefore, Business Loans give you the gift of flexibility to spend it on what you want.
- Loans are dependable and regular. The interest rate and length of repayment is agreed upfront, meaning that your monthly installments are consistent and uniform.
WHAT TO WATCH OUT FOR
- Many loan providers require lots of information about your business which can make for a slower process. Since it may take a few days to get your paperwork sorted, make sure you plan ahead and don’t leave it to the last minute!
- As repayments are fixed, you need to be sure that you will be able to afford monthly repayments even during quiet periods such as post-Christmas.
- With hundreds of lenders in the market it can be confusing knowing the best option. (That’s ok though - we can help with this!)