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Everything you need to know about small business loans

Every business needs cash in its bank account to run properly. It doesn’t matter how big or small – cash flow is everything. It’s one of the few things that a corner shop and a massive international business have in common! Naturally, that means some businesses need to boost their cash flow from time to time. Just like most people can’t afford to put several thousand pounds down for a new car instantly, a business owner also can’t afford to buy some of their assets up front either. That’s why they need a bit of help from a small business loan. Flexible business finance gives business owners the time and resources to invest and keep growing. With that essential extra cash, those great opportunities will be within reach.
What is a small business loan?
What is a small business loan?

A small business loan is a sum of money borrowed by a business and is a form of debt finance used by small businesses to pay for costs and expenses incurred in the running of the business.

How tricky is it to find the right small business loan?
How tricky is it to find the right small business loan?

Despite all this good stuff, the small business marketplace can still be difficult to work out. Especially if it’s your first time…

• There’s loads of choice and different options. Do you have time to shop around?
• Interest rates and costs vary massively. How do you know if you’re getting the best deal?
• It’s difficult to know if you’ll be accepted or not. Can you check easily?
• Will repayments be unaffordable? Is there some flexibility, or is it ‘their way or the highway’?

If you’re at the beginning of your search, we’ve got some good, solid guidance for you. Nothing too complicated or wordy – just practical help for any small business looking for a small business loan.

Where to get a small business loan
Where to get a small business loan

There are lots of places to get a small business loan, and some are a bit unexpected…

Banks
Most people picture a big, old-school bank when they think of finance. Going to a bank for a business loan used to mean booking an appointment, putting on your best outfit, and selling yourself to them. Now, you can usually raise finance by applying online.

There’s still a bit of ‘selling yourself’ involved, but at least you don’t have to put a shirt on anymore…

Government bodies
Some small businesses can get cash straight from the government. Schemes and funds are sometimes set up to support specific types of businesses, particularly when there’s a big demand for them.

To encourage new business growth, the government recently launched a Start Up Loan scheme. If you don’t fall into their criteria, you’ll miss out, but it’s always worth seeing what’s available.

Professional organisations
If you’re working on something that could be really big in your industry, some organisations would be happy to help. Grants and loans are often available for research, development, and other important costs.

Charities
The more people empowered to develop their business, the better. That’s why some charities create funds specifically to help people set up or grow their small business.

There are many organisations with funds for people who usually struggle to access finance. The Prince’s Trust Enterprise programme was set up for entrepreneurial 18-30 year olds.

Alternative lenders
Just like ordering a taxi or a takeaway has been revolutionised by technology, so has business finance. Alternative business finance lenders have sprung up in the last few years (the industry grew by 32% between 2016 and 2017), promising to make borrowing cash for your business a lot easier.

Their products and rates vary massively, but they can usually provide simple online customer service and fast access to cash.

Some important business loan terminology you need to know
Some important business loan terminology you need to know

Don’t know your APR from your factor fee? Here are some essential business finance terms, explained in normal human language we can all understand.

Borrower
You! The person borrowing money or raising finance.

Lender
That’s us – the people who lend your business the cash.

Principal
The amount of cash you raise.

Interest
The extra percentage you repay on top of the amount you borrowed.

Annual Percentage Rate (APR)
The average interest repaid by a lender’s customers every year.

Factor rate
This is an easy way to work out the full amount you’ll repay after interest is added. If you borrow £10,000 and the factor rate is 1.32%, you’ll pay back £13,200 in total.

Payments
You usually repay your loan through regular payments. You’ll keep making these payments until the loan is fully repaid.

Term
The amount of time it will take to pay your finance back.

Collateral
A physical item you include as part of your loan agreement. That means the lender can take it from you if you can’t repay the finance.

Guarantor
A guarantor helps you get a loan by promising to cover your repayments if you can’t afford them.

Raise £3,500 to over £150,000 for your small business

Capify offers flexible finance with simple repayments. There are no massive monthly Direct Debits to think about, just small manageable payments that are easy to keep track of.

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