It’s not easy being a small business. When the economy wobbles, they’re the first to feel it and in the last few years there have been plenty of shakes with Brexit, the pandemic, the Russo-Ukrainian War and the Middle East crisis.
Soaring inflation in particular has driven up costs for virtually everyone, but smaller businesses are more likely to not have flexible cash reserves to help them ride out tough times.
What’s worse, is that a concerning number of SMEs find it very difficult to get the funding they need. As we’ve written about before, a recent Parliamentary investigation found that acceptance rates for SMEs applying for bank loans are falling, down from 80% in 2018 to just 50% in 2023. The problem is not just that smaller businesses are struggling to get access to bank loans (although, they are), it’s that there is a lack of awareness about the different funding options on the market.
Not every Business Loan is the same. In fact, not every type of finance has to be a Business Loan. This article has been written to give small businesses the background they need so that they can explore all the options available when applying for finance.
What is a Small Business Loan?
Borrows can apply to lenders or via a broker for Small Business Loans as a way of accessing a flexible lump sum of cash. If successful, the borrower will receive the money directly into their bank account, typically within a few business days of approval but it can be as little as 24 hours.
The borrower benefits from a quick cash-boost that can be used for any business purpose – launching a new marketing campaign, hiring new staff, buying more equipment, fitting out a new office or simply for just having some extra working capital in the bank to give some breathing room for day-to-day expenses.
How much are Small Business Loan repayments?
Interest rates vary. How much you pay will depend on your individual situation along with loan-specific factors such as how much you’re borrowing and the term of the loan.
Typically, a Small Business Loans comes with a fixed interest rate, which means that the amount you pay stays the same each month. But repayments can also be customised to your specific needs. For example, if your business is seasonal (e.g., hospitality or farming), then you can arrange to have seasonal payments where your loan repayments are weighted so that you pay more during peak periods and less during quieter months. You can even choose to make holiday payments, allowing you to temporarily pause your payments altogether during the off-season.
If cash flow is tight, you may also be able to arrange for interest-only payments, where you just pay the interest on your loan.If however, business is booming and you wish to pay off your loan early to save on interest payments in the long term, it may also be possible to arrange to have a loan that allows for an early settlement without penalty, giving you the freedom to repay your loan in full before the agreed term ends without paying any extra charges or penalties.
Alternatives to Small Business Loans
Some businesses find it hard to secure a loan, but there are still options available to help your gain funding.
One example is Invoice Finance, which lets you borrow against any unpaid invoices. Lenders will release around 85% of your invoice’s value, using the invoice itself as collateral.
Another example is Asset Finance, which helps businesses to launch, update and grow by helping them to purchase or lease equipment, machinery, or other essential business items through a regular payment plan. It can often be a critical part of a business’ expansion plans or simply used to replace old, worn-out, or outdated equipment. Asset Finance can even be used for new businesses looking to open their doors for the first time.
Finally, Refinance, which enables you to release around 80% of an asset’s value back into your business as working capital. Refinance can be used on equipment or vehicles, even if the item is already on finance. While the debt is secured against your asset, you’ll still own it and are free to use it as normal while making repayments.
All these finance solutions are a way of unlocking value from your business, giving you a cash boost without the need of apply ing for a traditional loan.
What do I need to apply for a Small Business Loan?
Applying for a Small Business Loan isn’t as intimidating as it sounds. Every lender is difficult, but generally you’ll need to prepare the following:
- Business bank statements
- Business accounts
- Balance sheets
- Profit and loss (P&L) statement
- Business plan (for New Start businesses only)
It doesn’t take long to find out if you’ve been successful – anywhere between thirty minutes to a couple of hours.
How can a broker help with Small Business Loan applications?
One of the main things holding small businesses back from successfully securing a loan, is that they’re not aware of alternative finance providers. They’ll know of the traditional big banks but not of specialised lenders, many of whom will tailor the funding to specific industries. Typically applying for funding through a lender that has a deep knowledge of how your sector operates can increase your chances of success.
That’s one of the biggest advantages of using a broker. We know the finance industry inside and out and can connect small businesses with lenders who are best suited to their specific needs.
Thinking about getting a loan for your business? We’d be happy to have an informal chat to see if we can find the best solution for your situation. Get in touch today.
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