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Funding Your Business – a Brief Guide to Small Business Loans and Financing

Are you just starting out on your first commercial enterprise? Are you looking for investment to develop your business? Do you need a cash injection to make your business and sales processes more efficient and cost effective?

Whatever stage you are at in your business, you are likely to be looking at financing options and the possibility of taking on a Small Business Loan. 

This brief guide should help you understand the different type of funding options available to you.

Getting a Business Loan for Small Businesses from your Bank

One of the most obvious ways to raise finance is to talk to your banking provider in the first instance.  Banks have a range of different products available to small businesses.  Some products are secured against a physical asset such as premises (which can help to bring down interest rates).  They may also consider unsecured loans.  These are generally only offered where a company has a good business record and a history of strong financial management. 

The downside of taking out a small business loan from a bank is that the restrictions on lending are significantly tighter.  FCA compliance mean that banks follow the rules.  Some of the products offered are not actually regulated by the FCA but the banks will nevertheless take care and impose their own code of conduct on their transactions. 

Mainstream banks may require personal collateral as security before lending  – so if things go wrong then you could be held personally liable for the debt (even if your company is Ltd.).

Conventional banks place an emphasis on factors such as personal credit histories for company directors, company accounts and business history before deciding whether or not to lend. 

Finding an Alternative – Small Business Cash Advance Loan Providers

There are many specialist brokers who provide both secured and unsecured loans for those struggling with accessing loans from High Street lenders.  These may be an option if you (or one of your business partners) have had credit problems in the past for example.  They are also available to companies that are less established in terms of trading. 

Because the risk to the lender is much greater, you can expect to pay much higher interest rates on loans coming from outside of the mainstream banking sector.   Lenders are likely to be more vigilant making sure that you are able to meet the repayments.  They are also more likely to take swift action should you default on the loan in order to protect their investment.  

If you are a new business or start up with no financial history, then getting funding for your start-up can be particularly problematic. Our specialist advisors can offer you a range of different solutions that can help you to establish and grow your new company. 

When you Need Funds Quickly Fast Small Business Loans Can Offer a Viable Solution

Few companies will offer business lending without picking over your financial situation with a fine tooth comb to ensure that their lending is safe. 

There are, however, a few lenders who are willing to provide ‘in principle’ quick decisions and our brokerage services can help you find the right deal for you. Our advisors have a great deal of experience in this area and can guide you through the process and advise you on the best deals available for your particular circumstances.  

Government-Backed Start Up Loans 

There is a government scheme available for new business start-ups providing unsecured loans up to £25,000 over a 5 year period.  You should note that conditions apply, and you may find yourself ruled out for a number of factors. 

The scheme expects applicants to have a good credit history and a detailed business plan including profit and loss forecasting.  The business has to have be new or trading for less than 2 years. The scheme will then assess the individual business (and business owner) and decide whether or not the investment/small business loan is a safe bet.

Peer to Peer Lending schemes

There are many different schemes that have popped up in recent years.  Technological developments have facilitated a boom in this kind of lending – with apps and websites such as Zopa, Funding Circle, and Lending Crowd. 

The idea behind these schemes in simple.  Borrowers are looking for reasonable rates and more flexible terms and conditions.  Peer to peer lenders make individual decisions (rather than automated ‘computer says no’ algorithms based on credit history), and business plans are assessed on merit as well as other risk factors. 

Lenders choose to put their money in peer to peer platforms where returns are higher than conventional investments.  Some will work on a ‘bidding’ basis where individual investors will choose to lend to a specific business.  Others offer a general overall investment service where the lender has little input into where their money goes. 

If you have an adverse but ‘explainable’ credit history, but a really sound business idea and plan then you should choose your platform wisely and go for one where they offer investors the opportunity to ‘take a punt’ on your individual business.

Whatever route you decide to pursue for your Small Business Loan, it is definitely worth doing your homework before making any application. Always seek out professional advice and check that your business plan covers all possibilities and projections so that potential lenders can have faith that their money is secure.


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