Understanding small business loan affordability
Loan affordability depends on your business’ average turnover, what you want to pay for, and what you can comfortably afford to repay. Some small businesses would be able to secure and repay a loan of tens of thousands, while others would be much more comfortable with a loan of £5k or less.
Every small business wants their finance to be as affordable and manageable as possible. That way, you can pay for what you need and feel comfortable with the repayments too.
- How much is affordable for your small business?
- How length can affect loan affordability
- Affordable repayment terms
- Get flexible finance with the Merchant Cash Advance
- Why lenders assess affordability
- What your affordability check includes
- Making sure payments are sustainable
- Getting approved for your small business loan
- The benefits of a Business Loan
- To be eligible for a Business Loan, you’ll need to
- Try our business loan affordability calculator
How much is affordable for your small business?
Not sure how much you want to borrow? The first step is deciding what you want to use the finance for, then you can find the loan that works for you.
A lot of small businesses want to renovate, update their furniture and equipment, place a big stock order, or invest in new technology that speeds up important operations. Some business improvement ideas are more pricey than others and require a bigger loan, but they can have a massive positive impact on how your business does in the future.
Renovating your business and creating more space could help you be more productive, while hiring more staff could mean you serve significantly more customers. If spent well, the upfront expense can mean more profit for your business later.
How length can affect loan affordability
Some small business loans are short-term, so they’re repaid in a few weeks or months. Short-term loans usually work for small businesses that need cash quickly – it could bridge the gap between selling equipment or property, for example.
Medium and long-term finance is usually spread over several months and years. Regular payments will be cheaper, but due for longer. Some small businesses prefer this because it’s predictable and keeps costs down.
Affordable repayment terms
You can shop around for the best small business loan available to you by comparing interest rates and specific types of finance.
If your business is seasonal, you could benefit from a loan that can be repaid during your busy periods, but doesn’t demand anything while you’re closed. A fixed repayment arrangement might work better for you if you want predictability, because all the payments will be the same until the loan is paid off.
Get flexible finance with the Merchant Cash Advance
Some loans are nice and flexible, like the Merchant Cash Advance. You’ll repay a small percentage of your daily or weekly card transactions, so you only make payments when cash comes into your business. We only get paid when you do!
Why lenders assess affordability
Getting a small business loan is a lot like getting a mortgage or credit card for yourself. Similar questions, similar process.
A responsible lender will want to make sure you can afford to borrow and repay, so they’ll ask a few essential questions in the application. Your answers will decide how much you can borrow, when you need to repay, and how much interest is added. If a lender thinks you’re a safe bet, they might want you to pay slightly less interest or be comfortable with you making payments over a longer period.
Lenders will look at your profit and loss, turnover, and how long you’ve been in business. This info will tell them how stable and profitable your business is.
What your affordability check includes
The application usually includes some routine questions about your business finances and a credit check, which will look at your existing debts and repayment history.
It’s an accurate way for lenders to see how you deal with debt and how reliable your payments have been in the past.
The lender will be looking for sustainability and suitability, as well as affordability. You can improve your chances of approval by working on your business’ credit report – pay all bills on time (especially utilities and rent), file with HMRC before the deadlines, and close any accounts you don’t use anymore.
Making sure payments are sustainable
A sustainable small business loan will fit nicely with your business’ circumstances and needs. You should be able to make repayments comfortably for the full term of the loan, whether it’s a few months or a few years.
It’s crucial that you can afford to do all this without coming up against any financial problems. You don’t want the stress, and the lender doesn’t either!
You should be able to afford repayment as well as all your other commitments, like rent, utilities, staffing costs, and other business expenses. You definitely shouldn’t have to borrow money from another lender to repay your original loan, that’s a big red flag that the loan isn’t sustainable or affordable in the long-term.
Getting approved for your small business loan
It’s a bit nerve-wracking for small business owners, but many lenders will give you a decision in a few days. If you’re approved, you can get cracking with your business improvements!
Renovation and redecoration
Jazz up your interior, invest in new furniture, or build an extension and knock down some walls. Your customers will instantly notice the improvements and better use of space.
Speed up your routine operations. Both you and your staff will have more time to get down to business, serve customers, and look after the important things.
Whether it’s new uniforms, quality training, or extra pairs of hands, a small business loan can help you pay for it.
Equipment and stock
The right tools are essential. They can speed up your work, help you introduce new services, and even cut down on energy and repair costs!
To be eligible for a Business Loan, you’ll need to:
- Run a UK-based business as a limited company
- Process more than £10,000 a month through your business bank account
- Have at least 12 months’ trading records
Raise up to 75% of your average monthly turnover
Unlike a normal bank loan, Capify’s Business Loan is repaid in small daily or weekly amounts. It’s up to you how regular the repayments are. It’s all completely automated, so you don’t have to do a thing.
Lots of small business owners like our flexible, manageable repayments because they don’t have to save up for big monthly payments.
Try our business loan affordability calculator
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