Understanding small business loans
Understanding small business loans

A small business loan is a perfect way to get a quick cash injection into your business. Whether it be for new stock, to see you through tough times, or to invest in your business - considering a small business loan might be the right next step for you. With so many paths to financing available, the right loan for your business is out there. You just need to find it. Finding the right small business loan can be difficult - first, you need to understand what small business loans actually are, how they work, and when they're most beneficial.

What is a small business loan?

A small business loan is, unsurprisingly, a loan that is offered to small businesses. Small business loans differ from other loans because they’re tailored specifically to the needs of small businesses. So the rates available, as well as the repayment terms, are generally better suited to smaller businesses. They’re highly useful because they allow small businesses to easily unlock the financing they need to invest in stock, promotion, or business development – and they can also take the sting out of difficult financial periods.

The UK Companies Act 2006 defines a small business as any business with a turnover over under £6.5 million, a balance sheet not in excess of £3.26 million, and less than fifty employees.

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How does a small business loan work?

There’s no simple answer because it depends on the specifics of the loan you choose. Certain loans may work via APR or a factor rate. You may choose a small business loan where you have a defined series of repayments over a fixed term, inclusive of interest. You may prefer, however, to have your repayments correspond to a percentage of your earnings – so when your business does well you’ll pay more, but ultimately pay off the loan faster. The only option is to browse the various small business loans available to see which best fits your situation.

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Types of small business loans
Types of small business loans

Small business loans come in all sorts of guises, depending on what you're looking for. You can have a loan ranging anywhere from a few thousand to a few hundred thousand pounds. Understanding the different specific types of small business loans offered is essential, however, so you can make a more informed choice about what's right for you. As with anything, there are benefits and drawbacks with each loan type. It's all about establishing what you need and then finding the right loan to suit you. To do that, though, you need an understanding of the most common small business loans.

Comparing types of small business loans

Knowing which loan is right for you can be a struggle. Taking it as a given that you understand what you need from a loan, how can you know which kind of loan to apply for to achieve your goals? For that, you need to know a little bit about all the most common small business loans you’re likely to encounter. Knowing their benefits, and drawbacks will help you make the most informed choice possible.

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Limited company loans
Limited company loans

A secured loan will require you to put up some collateral or security. This is something that you own with a value similar to the value of the loan. In the event of you defaulting on the loan, the property will be taken and sold to cover what you owe. The benefit of this is that secured loans allow you to borrow more money, and the loan is not considered so much of a liability. The main drawback is that if you don’t make your payments, you will lose your collateral.

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Types of small business loans 2
Types of small business loans 2

Small business loans come in all sorts of guises, depending on what you're looking for. You can have a loan ranging anywhere from a few thousand to a few hundred thousand pounds. Understanding the different specific types of small business loans offered is essential, however, so you can make a more informed choice about what's right for you. As with anything, there are benefits and drawbacks with each loan type. It's all about establishing what you need and then finding the right loan to suit you. To do that, though, you need an understanding of the most common small business loans.

Comparing types of small business loans 2

A secured loan will require you to put up some collateral or security. This is something that you own with a value similar to the value of the loan. In the event of you defaulting on the loan, the property will be taken and sold to cover what you owe. The benefit of this is that secured loans allow you to borrow more money, and the loan is not considered so much of a liability. The main drawback is that if you don’t make your payments, you will lose your collateral.

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