Whatever your reasons for needing a business loan, making sure that it offers both flexibility and value for money is vital for your company's financial future.
Without enough flexibility, you might end up paying over the odds in penalties or connected costs even if the rates appear low. At the same time, you need to be getting the best possible price for your borrowing.
Whether you're looking for small business loans, business loans for bad credit, business start up loans or unsecured business loans, finding a specialist lender could pay dividends. However, first you should consider what finance options are available to you.
What are your options?
To begin with, you should find out whether your business is eligible for a grant from the government, the EU or local authorities. Grants are a totally free form of finance so make an attractive option if you meet the criteria, although most do specify terms that restrict what you're able to do with the money. However if you are eligible it is always worth applying as having extra money to put into the business is never going to be a negative.
If your company isn't eligible for a grant your other options include:
Unsecured Business Loans
If your company is in a strong financial position you may find that bank-offered unsecured business loans are available. Interest rates are based on a number of factors, such as how long you've been trading, your turnover, credit history and existing assets/liabilities.
Unsecured loans give you protection if your repayments fall behind, as the loan balance cannot be retrieved by repossessing your property; however your business loan rates will reflect this extra risk to the bank.
Peer to Peer Business Loans
Peer to peer lending business loans are private loans arranged independent of the banks. They're a form of social lending in which you borrow from other businesses and/or individuals across a managed network. Read our guide Social Lending: Is it Worth the Risk? for further details.
Advantages can include access to lower rates than those offered by banks and more ready access to credit than is sometimes available through more traditional channels. On the other hand peer to peer lending isn't currently FCA-regulated so resolving problems could potentially be more difficult. However if you are eligible it is always worth applying as having extra money to put into the business is never going to be a negative.
Bad Credit Business Loans
Some banks will extend specific loan products tailored to companies with bad credit; however they will take into account every aspect of your business' current and predicted income/liabilities before they make any offer.
To cover the risk of lending to someone with bad credit you are likely to find that you're charged higher interest rates. Despite, this you should still compare business loans for bad credit and make sure you get the best business loan rate you're able to access. This doesn't mean getting loan quotes from as many different lenders as possible, but instead asking for cost illustrations based on your credit standing instead.
Some non-bank lenders specialise in offering business loans for poor credit. These tend to be unsecured and can be a quick way of getting a short term business loan even with bad credit, however they can entail very high interest rates.
Before you borrow from a lender that offers short term business loans for bad credit you need to make sure that you have checked whether there is any other cheaper option available to you.
If you do decide to go down this route you need to be confident that you'll have the finances available to pay off your borrowing in full by the end of the loan term if not before so that you minimise cost.
Secured Business Loans
Banks can offer secured loans to many different types of business, although you will need to have property or assets to put forward as collateral for this to be an option.
Sometimes, because of the extra protection given to the banks by the fact that you've guaranteed the loan on something you own, these can be a more accessible option if you're struggling to access finance elsewhere and occasionally the rates can be lower and/or extra flexibility allowed.
However, for business borrowers it's important to understand there is an underlying risk that you'll lose whatever you secured the loan on if repayments are missed, so you should be sure that you will be able to pay back the loan in full so as to be sure you will not lose what you secured your loan on.
What else do you need to consider?
Once you've established what options exist for your business, you should identify which suits your particular funding needs best and compare the lenders operating within that area to find the best business loans available.
Check the eligibility criteria for each lender to narrow your search. For example, start up businesses should look for lenders that accept new business loans. Other lenders only offer loans to companies that have been trading for more than (e.g.) 2 years; or set minimum monthly turnover limits.
You should only ever apply for the minimum amount your company needs - taking into account some contingency - so exclude any lenders whose loans don't match your figures, there is not point applying for a loan that doesn't provide what you are after.. Also consider your timeframe, for example to see if a non-traditional, quick business loan is your only option.
After using the checks above to narrow your search to loans that you're eligible for and offer the basic features you need, compare those loans to find the best business loans rates around.
You'll need to consider whether you want the option of early repayment; compare the loan durations; and compare the interest rates offered to find out how much you'll owe overall and make sure you can afford each repayment over the full loan term.