What is a Business Loan?
It is easy to forget that loans were what the banks used to give to good customers. Business Loans are simple cash advances that were repaid in instalments over an agreed period, usually 1 to 5 years. Banks may still offer their strongest customers relatively small loans. If you have some property to give as security a larger loan might still be available. If you are in no hurry and the owner of a strong business plan then a government guaranteed loan might be available.
What has changed?
Unsurprisingly there is still a demand for business loans. Many quality businesses can present a good case for loans for investment purposes; the banks (for their own reasons) do not always listen. Many businesses do not apply because they feel as thought they have no chance of success. Thus a latent demand has built up and led to the development of an alternative market for Business Loans. This market is populated by lenders who have worked out that most established businesses are good for the money and highly likely to repay their debts. The banks still seem to be convinced that businesses do not require loans; the truth is more likely that businesses have given up asking for them.
Unsecured loans are provided to companies (or sole traders and partnerships) for smaller amounts, typically £5,000 to £350,000. The loans are usually provided on the strength of a Personal Guarantee from the directors of a business. Repayment periods can be from 6 months to 60 months. Larger loans may be available with structured repayment periods to suit cashflows. These loans are often ideal for companies that may have already pledged all of their security to another lender; the loan can be used to top up an inadequate facility.
Security for a loan might be by way of a debenture over all of the company’s assets or some or any of the assets, such as plant, machinery or property. If the assets are suitable, loans of up to £1mn may be available. Again, repayment periods may be up to 5 years and structured repayments may be available for larger loans. These loans may be for defined projects, such as the purchase of a new machine or buying extra stock, or even to repay existing, inadequate bank or invoice finance facilities.
Who can access Business Loans?
Loans are available for almost any successful company. For smaller loans a track record of at least 6 months will be required. For larger loans a track record of 2 years plus might be required. The more important factors are the plans for the business and the likelihood of success (and hence repayment of the loan). A good repayment record will lead to the opportunity to come back for a further loan or loans.