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Significant Rise in UK SMEs Borrowing Money Expected in 2023

The majority of UK SMEs (88%) plan to lean on business finance and credit this year according to new research carried out by solution-led fintech provider Nucleus Commercial Finance (NCF).

As the economic situation continues to challenge the outlook and stability of UK SMEs, it is revealed that only 12% of SMEs say they have no plans to borrow any money over the next 12 months – this rises to 29% when including sole traders and micro businesses. With interest rates still at record high levels, this is going to place a real financial burden on UK businesses.

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The expected borrowing is not, however, solely to patch holes. The reason most commonly cited by small and medium sized businesses is to enable them to seize growth opportunities (38%). More than a third stated that they plan to borrow in order to help employees with the rising cost of living (34%). A similar number said that borrowing would be driven by a determination to use it to make the business more environmentally sustainable.

Rising costs and financial stress are still having an impact, however. A third (33%) of small and medium sized businesses expect to use business finance to cover unavoidable rising overheads, while one in five (20%) are likely to do so in order to pay off existing debt.

Source: Fintech Finance News

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4 reasons to source business funding in 2023

There’s no doubt that it’s been a difficult few years, with pandemics, conflicts and the cost of living crisis all contributing to unease and uncertainty. Whether your business has been directly affected or not, you might have put off raising finance or had ambitions dashed by unpredictable circumstances. Caution is wise, but that doesn’t mean you should abandon all your growth plans until things settle down. There are still plenty of good reasons to source business funding in 2023.

Things are looking up(ish)

Contrary to predictions, the UK benefited from a World Cup boost to GDP in November, which may have helped to narrowly avoid a recession. Okay, so that growth might have only been 0.1 per cent, but it shows that there’s always scope for optimism. On top of that, after a period of high inactivity, PWC predicts that 300,000 UK workers could rejoin the labour market in 2023, giving you the opportunity to invest in key talent and plug skills gaps in your business.

There have never been more funding options

Crowdfunding, credit cards, invoice finance, government grants – there have never been more ways to access finance and there’s something out there to suit every type and size of business. In fact, alternative finance options are seeing growth even as other funding sources dry up. According to UK Finance’s Business Finance Review of Q3 2022, levels of invoice finance and asset-based lending surpassed those reported in Q1 2020 following nine quarters of consecutive growth. And businesses that use these types of alternative finance have seen a 14 per cent increase in sales compared to the first three quarters of 2021.

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There’s no time like the present

If you have big ambitions but you’re waiting for things to calm down, you could be waiting a long time. We have a tendency to assume there will come a perfect time to put our plans into action, but the truth is that those perfect moments rarely, if ever, come about. That’s not to say we’re not going through an especially challenging period, but if you have access to finance and growth plans to action, why not just go for it? You might need to adjust your expectations or reign things in, but maybe, just maybe, the right time is now. And having seen how global events can have big consequences for small businesses, you could use this knowledge to invest in strategies that make your business more resilient to future challenges, whether that’s bringing your supply chains closer to home or investing in the latest technology to drive efficiency and get ahead of the competition.

You can power change

Instead of being at the mercy of uncertainty, why not use your entrepreneurial skills to change things for the better? Whether you make amazing coffee or help people find better deals, transform lives or just make someone’s life a little bit easier with a nifty solution, your business has the power to help others cope with challenging times. Raising finance can help to grow your business and reach even more people.

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Small businesses need new model for growth in recession

Four fifths (81 per cent) of business owners are worried about recession, with small business confidence taking a hit as the nation’s 5.5 million small firms face an array of challenges heading into 2023. A new report from Small Business Britain and TSB Bank has found that concerns about the economy is deterring small businesses from investing in growth, innovation and hiring new talent. However, the report also points to many sources of business opportunity and a determined fight back from the nation’s small business community, with over half of small businesses (52%) signalling that they are experiencing challenges, but pressing on anyway.

The report, which looks at how small businesses can return to growth, underlines the grit and resilience that now characterises Britain’s small business community, as they deal with perpetual change following the pandemic and cost of living crisis.

Over a fifth of small businesses (22%) say Brexit has impacted their business negatively, and 29% of firms have reduced operational spend to respond to difficult conditions. However half have continued to adapt by adding on new revenue streams.

“Small businesses continue to face hugely turbulent times, and many are exhausted from dealing with constant challenges,” said Michelle Ovens CBE, founder of Small Business Britain. “While the prospect of recession is causing much anxiety, there is still a lot of opportunity for small businesses in the UK to drive economic recovery and we need to help them grow in confidence and optimism with tools to help them focus on growth and success.

“Waiting for the ideal market conditions is broadly futile in a world that keeps changing as we have seen over the last three years. Businesses need a model for operating that can survive and thrive during turbulent times.”

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Small Business Britain has launched a guide to help businesses grow during a recession, with identifying new routes to market and focusing on export opportunities identified as key tactics for small businesses to cope with a flat UK market.

“Growing a niche food product during an economic downturn is challenging, as consumers can be cautious with their spending and less likely to try new or specialty items,” said Delight Mapasure, founder of K’s Wors, a South African speciality sausage producer. “This has led us to focus on exploring new opportunities via export markets and we have entered the Middle East and have talks at an advanced stage with India. Being able to reach new customers is vital for us, and other small businesses, to develop, reduce risk and have greater resilience.”

Focusing on digital skills is also highlighted as a priority for growth. The report found that 52 per cent of small businesses have not sharpened technology skills in the last year, and 64 per cent have not been investing in technology tools.

Adeel Hyder, Business Banking Director at TSB Bank said: “There’s no getting away from the fact that the last few years have been tough for many small businesses. The next twelve months will bring further challenges as costs continue to make an impact, and a potential economic downturn is forecast. Despite this, I believe there are many reasons to face the future with optimism.

“It is very often small businesses that lead the way out of a recession, and there are good reasons for that. Small businesses tend to have closer relationships with their customers and partly because of that, they are often better placed to anticipate and adapt to changing needs in the economy. It is clear from the experience of the last few years, that challenges can very often be accompanied by fresh opportunities”.

Source: SME WEB

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5 Tips To Make Your Business Stand Out In A Crowd Of Competitors

Separating your business from the pack is key to success in any industry. How do you make sure your business stands out from the rest? Superb service and product quality are critical, but how your business is marketed and perceived will also decide your success and growth. With that in mind, let’s look at our five tips for helping your business stand out in a crowd of competitors.

Tip 1: Establish Your Selling Point
What actually makes your business special? Why should a consumer choose you over a competitor?

Having an answer to these questions will determine your business’ selling point and is the steppingstone towards proving your ‘why’ to consumers. Establishing this early on is paramount or your confidence as a business owner will be lacklustre.

After your selling point is cemented the next challenge smaller businesses often face is gathering the team to support these operations. This can be mitigated through virtual office providers such as Servcorp which offer businesses a fully trained support team. As a small business, having your own receptionist, secretarial assistance and I.T support without needing to undergo the hiring and training process is a large cost plus time saver – after all, your time is money.

Businesses also receive this staff support at the fraction of the cost they would otherwise be paying.

Tip 2: Present a professional working environment

Many businesses find it challenging to create a professional working environment to impress their clients, especially for newer companies competing in major global markets on a limited budget. Traditional office spaces require long and costly leases, with break-out clauses only every few years, if at all.

A more convenient and cost-effective solution is a serviced office. These can be rented at a far less cost than a traditional office, whilst still being located in major business hubs like London and New York. Moreover, customers will enter an unbranded reception area allowing businesses to imply that they control the entire floor.

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Tip 3: It’s all about Marketing
Your product may be superior to competitors, but it will all be meaningless without adroit messaging and unique marketing. Your business is likely to have thousands of competitors, which is why the first step is to complete a competition analysis.

Comprehensively understanding what your competitors do well, recognising trends and identifying where others are failing will provide your business the strategic insight needed. From this your business will have a decisive direction on its marketing goals, however finding new methods to secure a commercial advantage will accelerate your point of difference.

For example, using a virtual office can provide an established look for smaller businesses based in the UK. With a virtual office your company can legally register its business address as the virtual office’s address.

Tip 4: Always provide excellent customer service
Customers expect and deserve excellent service when dealing with you. Make sure you have processes to deliver the highest quality customer service and ensure that all your staff are trained to meet these expectations.

Whether it’s the front desk staff, your Customer Service team, or a manager calling back, providing the best care for your client will help retain them over the long term. Even an unhappy customer can be won back if the service they receive after a problem is effective and genuine.

Tip 5: Network!
Get discovered by networking. There are many ways to find networking opportunities. Meetup groups, seminars, conferences, and industry events are great ways to meet like-minded people. This an opportunity to make business partners and scope out your competition at the same time.

And don’t forget the power of social media – there’s an app for almost anything these days!

By creating meaningful relationships in your industry, you can leverage audiences and gain exposure for your business. It’s also worth noting that all Servcorp’s serviced and virtual office customers gain access to Servcorp’s online networking community of 50,000+ global businesses and networking events, providing them with a significant additional value from their small investment.

Source: Real Business

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SMEs to contribute £160bn in turnover by 2025 to boost UK economy, says Sage

The “SMBs Driving Economic Recovery” report from Sage today reveals that, despite ongoing economic turbulence, growth in turnover for UK SMEs is expected to outperform the growth rate for all businesses from 2023-2025.

SMEs are expected to make up 51.9 per cent of total business turnover in the UK economy by 2025. The report, which assesses data in the period from 2005 to 2021, including the impacts of the Global Financial Crisis, then forecasts growth trends over the next three years.

Analysis predicts that the number of UK SMEs is expected to rise by 342,000 from 2022 to 2025, while emphasising the importance of SMEs across all regions in the UK. In 2022, London generated £662bn worth of SME turnover, while in the North East, SMEs employed 67 per cent of all business employees in the region.

Historical market analysis by Cebr also underlines the vital role of SMEs in the recovery from the 2007 to 2009 Global Financial Crisis and projects a similar pattern when we emerge from current economic challenges. In the UK, the number of SMEs grew by 12 per cent between 2013 and 2015, well exceeding pre-crisis levels.

The data also found that 13 per cent and 10 per cent of all new businesses were born during 2008 and 2009, respectively, showing that entrepreneurs were not fazed by the downturn.

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Derk Bleeker, president EMEA at Sage, commented: “SMBs shouldn’t be underestimated in helping to recover and drive the economy as we head into the next few years. They make up 99.9 per cent of all businesses and generated more than half (51.1 per cent) of UK business turnover in 2022.

“So, while business owners are facing real challenges, they are clearly in a better position to adapt to changing economic landscapes and have the resilience to ride the storm.

“Our ask of the government is simple; make it as easy as possible for SMBs to do business digitally and adopt technology that will unlock productivity and give them the insights to adapt and grow quicker.

“With the right support, policies and incentives in place, SMBs will unleash their full potential and play a vital role in economic recovery and sustained long term growth.”

By Matthew Neville

Source: Bdaily News

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Bridging the Credit Gap: How SMEs can Overcome the Barriers to Accessing Finance

SMEs are widely perceived to be the backbone of the UK economy, accounting for three-fifths of employment and around half of turnover in the UK private sector. Despite this, while lending to large corporates has steadily risen, growth in lending to SMEs has been stalling since even before the Covid-19 pandemic. Indeed, new findings from Codat cite that almost half of SME owners who are in the market for credit said they find it difficult to access external capital.

With the success of these companies crucial for the wider health of the economy, the Federation of Small Businesses warned last month that further barriers to finance for SMEs will stifle economic growth at a time when it is sorely needed, given many believe the official announcement of a recession is just weeks away.

Put simply, the existing credit landscape is not set up for SMEs to succeed, and there is an ever-widening gap between the financial support they and their larger counterparts are able to secure. Bridging this credit gap is key to addressing how businesses can not only remain resilient in unfavorable economic conditions, but strive for growth and thrive in the long term.

Looking outside of traditional channels

When looking to explore finance options to fund business investments, many SMEs will approach their bank by default. However, while the wider finance industry has evolved considerably, high-street banking remains somewhat antiquated. NatWest, for example, announced in October that it will be closing 43 of its branches across the UK, exemplifying how the traditional role that banks once held – providing customer service, a personal relationship with a bank manager, and reliability – is slowly disappearing.

When it comes to finance options being offered by banks, the routes to obtaining credit remain limited, making it all the more likely that a business will be unsuccessful in its application, or may make funding assessments based on surface-level information, rather than considering the wider business story. This may mean a business owner is either turned away immediately, preventing them from obtaining the financial support they need to grow, or commit to a product that isn’t suitable.

Clearly, an alternative option is needed. With the bespoke guidance that would have traditionally been provided by a bank generally no longer available, the road has been paved for others, such as finance brokers, to step in.

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Considering suitability of debt

Exploring all potential finance avenues will be crucial to solving the issue of the credit gap. All too often, SMEs take out the wrong financial product for their needs; sometimes due to a lack of understanding surrounding their options, and sometimes due to insufficient or poor guidance being offered.

Fewer than one in ten (9%) small firms applied for finance in Q1 2022, according to the quarterly Small Business Index (SBI), plummeting to the lowest level on record. This decline is being exacerbated by a difficult application process for default finance options that are too basic and frequently unsuitable – solely offering fixed-term loans or increased overdrafts, for example.

Nevertheless, appropriate alternative forms of funding can be secured through different channels – specialist finance brokers for SMEs can offer their expertise with regards to products that can directly facilitate productivity and growth.

For example, the relatively new Business Cash Advance has low barriers to entry in terms of eligibility criteria and is an ideal option for sectors and businesses that tend to experience uneven cash flow: they may see seasonal rises and falls in revenue or may struggle with customers paying invoices on time. These cash advances are repaid as a percentage of card sales and therefore are aligned with performance, making them far more flexible and easier to access than many more traditional forms of finance.

Leveraging assets

Accessing the right finance options can often seem like a challenge for SME owners, particularly in a time of economic downturn, and many may not be aware of assets they have that can be leveraged to secure finance. Asset finance is an often underused but effective solution that can present working capital solutions at a lower entry point.

From an external viewpoint, finance brokers can often identify opportunities – anything from medical equipment to agricultural machinery to telephone systems can be considered a valuable asset, and businesses can benefit from the debt being secured against the asset. For example, where businesses own existing assets outright, these can be refinanced to demonstrate a lower risk level to a lender, rather than raising ‘riskier’ new debt. Ultimately, this represents a cheaper form of debt that is more appealing to lenders when appetites for risk are low.

SMEs struggling to meet ever-increasing eligibility criteria required to get their foot in the door with banks means that accessible financing plans have become more important than ever before. Finance brokers with a better understanding of SMEs’ needs have a crucial role to play, going forward, and must step up to ensure that their diverse needs are met.

In challenging times of economic downturn, having access to tailored solutions and bespoke guidance can make a world of difference. Ultimately, successfully navigating our way through business challenges and into sustained productivity and growth will require brokers to take a hands-on, consultative approach to ensure that SMEs continue to grow and thrive on a long-term basis.

By James Cook

Source: Business Leader

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How Can Young People Make It As Entrepreneurs In Today’s Economic Climate?

Starting a business on your own has never been an easy path to follow, but for those who take the plunge, it can be a rewarding one. No matter what your first entrepreneurial project is, support is always necessary, whether that’s your family helping you to pack your first shipment or financial assistance from government schemes.

Making your way in business continues to be difficult in the wake of recent global events and given the difficult economic landscape young entrepreneurs are faced with today, you could argue that the hill to climb is steeper than ever. Those odds can seem even slimmer when almost 60% of small businesses fail in their first three years of life. While there are barriers, there are also ways for young people to find the support they need and overcome those hurdles to enjoy business success.

The power of social media

Social media is one of the great levellers for businesses around the world. While funding issues and skills gaps are hurdles to overcome, when marketing online, you find yourself with the same opportunities as large corporations through social media. Companies that can generate a huge following through original content can then translate that presence into sales.

For example, the parkour brand STORROR gained a following of millions through its YouTube videos before successfully segueing into the world of parkour clothing. Or take the Dollar Shave Club, which began with a viral video in 2012 that acted as the launchpad for the company’s continued success.

Financial business support for young people

Starting a business requires investment, be that from your own wealth, that of your family, or from investors and banks. But most young people haven’t had the time to build up significant investment funds so they need to come from somewhere else. Fortunately, there are several avenues for young entrepreneurs to pursue when seeking funding support for their businesses.

Small business loans

Small business loans from the bank are typically between £1,000 and £50,000 and should provide enough capital to start most entrepreneurial ventures. But you will need to present your case well to the bank as they need to be convinced that you are a sound investment. Similarly, young entrepreneurs can seek help from the government with a Start Up Loan that ranges from £500 to £25,000.

You must create a business plan that is complete with facts, figures, and projections so you must do your homework and thorough market research for a successful loan application. Outlining in detail how you will use the investment and what your strategy will be are also important to put forward to earn the trust of bank loan managers.

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Crowdfunding

The benefit of crowdfunding investment is that you already have interested parties in your products, services, and brand before you kick things off. This process allows entrepreneurs to raise funds for their business online by offering a small stake in the company. It is similar to selling shares and some companies have raised millions of pounds through micro-investments.

Small business grants

Government grants are available for startups to help cover the costs of buying equipment, premises, and other essential infrastructure. These can be tricky to apply for as each grant provider is looking for different things, and you don’t want to waste precious resources trying to obtain a grant that you aren’t eligible for.

You may also be eligible for green business grants that aim to help companies become more sustainable and environmentally friendly. This can help with installing LED lights, insulation, more efficient heating, or alternative energy sources.

Improving your skills

To run a business well you not only need to have the technical expertise for your chosen field but you also need to understand the finances involved, how to manage people and supply chains, and keen problem-solving skills. You may wish to figure things out as you go but it can be helpful to give yourself a sound foundation in some of the skills you will need for success.

Consider entering a mentorship program to have someone with experience take you under their wing or try youth entrepreneurship schemes that aim to improve and develop your business leadership skills. For example, Youth Business International equips disadvantaged young people to help them build the skills, confidence, and connections they need to beat the odds and become successful business owners.

Digital skills for social mobility

Given the range of barriers along the way, such as poverty and social inequality, social mobility in the UK is difficult for many to achieve. But technology is providing a springboard for social mobility as the demand for digital skills continues to rise. From cybersecurity services to digital marketing and content creation, there are a host of startup ventures that young entrepreneurs can embark on that leave traditional business models in the past.

Source: Shout Out UK

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UK Finance Reports a Shift in Lending Needs for SMEs as Caution Rises

UK Finance today releases its latest Business Finance Review which reports on the finance needs of small and medium-sized enterprises (SMEs).

Our latest review shows the expected slowdown in lending to SMEs following a reduction in applications for finance – particularly loans – in the previous quarter. SMEs’ demand for finance continues to be muted this year as they become more cautious because of the uncertain year ahead.

Gross lending

The figures from Q3 showed a continued softening in applications for finance from SMEs. Overdraft applications continued to trend up in the third quarter, but demand for loans fell.

Gross lending through loans and overdrafts to SMEs edged down to £4.5 billion from £5.1 billion in the previous quarter. In London, this represents the second quarter of declining lending values. The South West also saw a marked drop which could be due to the decline in finance applications from the agricultural sector, which is highly represented in the region. For other regions of the UK, lending remains stable and similar to pre-pandemic levels.

Meanwhile, overdraft applications represented the highest volume of applications since Q1 2020. This points to cashflow management and working capital requirements rather than business development.

Invoice finance and asset based lending (IF/ABL)

IF/ABL advances continued to grow and have now surpassed those reported in 2020 Q1, approaching the levels seen in 2018/19. There have now been nine consecutive quarters of growth, with advances at the close of Q3 2022 standing at almost £22 billion.

Data shows that there was strong growth in the number of the clients that are supported, with total client sales up 14 per cent. IF/ABL business continued to have access to funding in existing facilities.

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Deposits

We continue to see relatively modest changes in the aggregate picture across SME cash deposits.

At the end of Q3 total deposits fell by just under one per cent compared with three months previous, and by two per cent relative to the same period a year ago. This does however vary by sector. There has been a somewhat larger drop off in deposits in accommodation and food services, and health and social care. In contrast, cash deposits were higher in construction and real estate.

Source: UK Finance

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89% of SMEs intending to borrow over the next year to help them stay afloat

Demand from SMEs for lending is set to increase in the next 12 months, as 89% of businesses look to borrow to stay afloat, cover overheads or refinance existing debt.

That’s according to a recent survey from Allica Bank, which polled 150 established businesses (those with 10-100 employees) on their outlook for 2023 – a year that looks set to be dogged by recession, inflation and rising interest rates. More than two in five (43%) said they will need to borrow simply to survive, while nearly the same proportion (37%) are doing so to refinance existing debt.

It follows the British Business Bank reporting that while total debt held by SMEs reached new highs during the pandemic in 2020, loan repayments have been becoming a smaller share of business cashflows as turnovers have started to recover.

Allica Bank claims that the lack of information available to businesses about financial products makes this trend especially concerning, with 10% of respondents saying they needed more clarity about borrowing and 17% saying they wanted a greater selection of loan products to choose from.

The bank says this could lead to a growing number of businesses becoming over-leveraged, or missing opportunities to support growth. Recessions often lead to a higher proportion of defaults on business loans, while the Coronavirus Business Interruption Loans (CBILS) is already seeing an 8% default rate, amounting to over £6 billion, according to the government’s latest report.

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Conrad Ford, Chief Product Officer at Allica Bank, says it’s vital for the UK economy that businesses are made aware of the products available to them and get the expert attention they deserve: “It’s the responsibility of banks to give businesses the best chance of surviving and thriving through this recession by ensuring they can make informed choices.

“This needs to be backed up with fast and clear responses to loan applications, so that businesses aren’t waiting weeks for an answer. While banks should actually look individually at each application and assess each business on their own merits and opportunities.

“Fewer and fewer banks still offer their customers a proper relationship manager – someone that can walk business owners through their available options and help them make an application. At Allica Bank, we make relationship managers a core part of our offering for our business customers because we know how valuable their expertise can be. Especially as the economy is expected to enter recession.

“We also recommend businesses consider speaking to their accountant or a commercial finance broker for support when looking at their finance options.”

By James Cook

Source: Business Leader

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How To Get A Business Loan

Whether you’re planning to expand your business with new premises or equipment or to invest in recruitment or marketing, you may be considering taking out a business loan.

To help you decide whether a business loan is the right finance option for you, here we take a look at what they are, what you’ll need to apply for one, and the alternatives, as well as answering some common questions about business loans.

What is a business loan?

A business loan is a form of borrowing for commercial businesses rather than individuals. Some may be more suitable for start-up businesses while others may only be suitable for businesses with a certain number of years of filed accounts.

You’ll usually repay the amount you borrow in monthly instalments over an agreed period of time, with interest on top. Typically, business loans are for amounts from around £1,000 up to potentially millions of pounds.

Are business loans secured?

Business loans can be secured or unsecured. A secured loan is one that is linked to an asset, such as property, vehicles or stock. This means that if you can’t make payments, the lender may take your asset to pay for the loan.

As there is less risk to the lender, secured loans are usually for higher amounts and interest rates are usually lower.

Unsecured loans don’t require an asset as security so tend to be for smaller sums and come with higher interest rates. Unsecured loans may be more suitable for small businesses without large assets.

Some lenders will ask for a personal guarantee from a company director for an unsecured loan.

What types of business loan are there?

Some of the most common types of business loans include:

Bank loan
With a bank business loan, you’ll borrow a set amount of cash from a bank or building society over an agreed period of time, with interest.

Government-backed Start Up Loan
This is an unsecured personal loan backed by the government to start or grow your business. To apply for this type of loan, you must live in the UK, be over the age of 18 and have (or plan to start) a UK-based business that’s been fully trading for less than 24 months.

Start Up Loans have a fixed interest rate of 6%, are for amounts of from £500 to £25,000, and you can repay the loan over a period of one to five years.

Short-term business loan
Short-term business loans are aimed at commercial organisations which want to borrow for a few months, rather than years, and don’t want to be tied into lengthy repayments. They can be over a period of weeks or months. However, they tend to charge higher interest rates than other loans so make sure you know what these are.

Peer-to-peer business loan
With a peer-to-peer loan (or a P2P), you’ll borrow money from private investors rather than a bank. You will usually be matched to these investors through an online platform. You may need to pay a fee to arrange the loan, so pay careful attention to any fees, charges and interest rates before committing.

Cash advance
A cash advance business loan (also known as merchant cash advance) allows you to borrow money against your business’ future credit or debit card sales. The amount you repay monthly will be based on a pre-agreed percentage of your card sales, so you’ll pay more when your business is doing well and less when it’s not.

Invoice finance
This is when a lender uses your unpaid invoices as security to lend to you. There are two main types of invoice financing:

Invoice factoring – you’ll be able to borrow a percentage of the value of your invoices and the lender will collect payment direct from your customers. The lender will then take its costs and you’ll be paid the remaining balance.
Invoice discounting – this allows you to borrow against the value of your invoices, but you’ll collect money from your customers and then pay your agreed fee.

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How do you decide which type of business loan to apply for?

When considering taking out a business loan and deciding which type to apply for, you’ll need to think about:

  • how much money you want to borrow
  • which loans are suitable for your business type – some loans such as Start Up Loans are only suitable for new businesses, while cash advance business loans are only suitable for businesses that generate a certain amount of revenue via card payments
  • how much you can afford to pay back each month, taking the interest rate into account
  • the length of time you’d like to take the loan out for. While it may be tempting to take a loan out over a longer length of time, you may end up paying more overall in interest
  • comparing the fees and charges with each loan you are considering.

It’s important to compare your options and to shop around before committing to an option or lender, looking at the overall costs of borrowing.

Applying for a business loan

Before you apply for a business loan, you’ll need to be clear about:

  • the amount you’d like to borrow
  • what you are borrowing the money for
  • how much you can afford to repay each month
  • how long you’ll need to repay the loan.

As with other types of loans, your business’ credit rating is likely to be checked, with more competitive loan terms generally being offered for those with a good credit score.

Some ways to improve your business’ credit score include:

  • checking your credit report and disputing any errors
  • paying bills on time
  • if you’re a limited company, filing full, rather than abbreviated, accounts to Companies House
  • making sure you have enough money in your account to cover any planned payments
  • only applying for credit when you need it. Making lots of applications suggests you are struggling financially. You could ask for a quote instead
  • keeping all of your information, such as your business address, up-to-date. Notify suppliers, as well as Companies House, of any changes
  • avoiding county court judgements (CCJ) as these are recorded on your credit report.

You may also be asked for copies of your business accounts, bank statements, details of profits and loss, tax returns, a business plan and proof of address and IDs of company directors.

Once you have gathered your documentation and have decided on the type of business loan most suitable for you, you can shop around then apply.

Comparing business loans

When comparing loans, some important elements to check are:

  • whether you are eligible for the loan you are considering. Always check the lender’s requirements carefully before applying
  • what the interest rates are for the loan and whether they are fixed or variable. It’s worth remembering that Representative APR means that the rate, or lower, is offered to at least 51% of applicants, so 49% of applicants will likely be offered a higher rate
  • whether your loan provider offers a repayment holiday (a few months off paying). However, taking a break from paying will mean that it will take you longer overall to pay off the loan and you’ll pay more in interest in the long run
  • whether there’s an early repayment charge on the loan.

Alternatives to business loans

If you don’t think that a business loan is for you, there are other options including:

  • Business credit cards – if you are looking to borrow smaller sums, a business credit card may be suitable. You may benefit from an interest-free period on your purchases. However, always pay your balance off each month to avoid paying interest charges or fees and check what the card’s annual fee and interest rates are after any 0% period.
  • Crowdfunding – this allows you to raise investment, often by pitching your business idea online, in exchange for rewards for the investors you attract. You could sell a stake of your business through equity crowdfunding or offer a reward such as free products or tickets through reward crowdfunding.
  • Overdrafts – your business account may have an overdraft which is either interest free or a low APR. This is usually only suitable for small amounts, though, and you’ll need to check the terms of your overdraft and stick to them.

By Cathy Toogood, Jo Groves

Source: Forbes