Small Business Loans, UK – Funding from £1k – £500k

Everything You Need To Know:

What is a small business loan?

How can I apply for a small business loan?

Which finance option is best for my small business?

What is a business credit score and how can I improve it?

Frequently Asked Questions

What is an unsecured business loan?

Unsecured business loans allow business owners to borrow money without using valuable business assets as security for the lender. This is a popular funding option for small businesses that may not have assets they can provide as collateral for unpaid loan repayments.

Small unsecured business loans tend to have higher interest rates and often require a director’s personal guarantee. This guarantee is a legally binding document that makes the business owner personally liable to pay the loan repayments if the business defaults on a payment.

At SME Loans, we offer unsecured funding products. Please be advised that when you apply for a loan, the lender you’re matched with may require you to sign a personal guarantee.

What is a secured business loan?

Secured business loans allow small businesses to borrow money on the condition that the business offers ‘security’ if the company defaults on the repayment of the loan. This security includes business assets such as property and equipment. The lender will take these assets if the repayment fails.

These loans work best for small businesses with access to valuable assets that can be used as collateral. When applying for a secured small business loan in the UK, the lender will consider the proposed asset and may ask for a valuation to be carried out.

Once the asset, loan amount and repayment structure have been agreed on, you will then give the lender ‘charge’ over the item. This ultimately means that the lender will hold the legal authority over the selected item if your business defaults and doesn’t manage to pay back the loan.

Please be advised that the amount of money you want to borrow will need to be equal to the value of the item you’re offering as security.

Top Tip: When it comes to secured loans, lenders prefer that you fully own your chosen asset. There are two types of assets you can offer to secured loan lenders, but most lenders are more likely to approve hard assets:

Hard Assets	Soft Assets
Commercial Vehicles	Office Equipment
Heavy Machinery	IT Equipment
Commercial Property	Stock

Can I still get small business finance if my business has been affected by Covid-19?

Yes, we are currently able to introduce applicants to lenders who have been accredited by the British Business Bank to provide the recovery loan scheme to UK businesses that have been impacted by Coronavirus. The scheme allows businesses to opt for term loans, asset finance, overdrafts, and invoice financing. To learn more about how the recovery loan scheme works, you can check out our comprehensive recovery loan scheme page which provides further details on the product.

How to use a small business loan as a start-up

1. Expansion

If your small business is doing well, you might find yourself needing to move to a bigger premise, expand your workforce – or both. Expansion can be expensive, and you may not have the required cash on hand to make it happen. A business loan can help with expansion.

 

2. Purchase Equipment

You might be thinking about ways you can improve your business’s daily operations for performance and productivity. Loans allow you to finance the specialist equipment that you need in order to do this.

 

3. Purchase More Inventory

As your small business grows, you need more high-quality goods and services secured to generate revenue. Raising funds to do this can be challenging, which is why a loan can be useful.

 

4. Training For Staff

A small business needs to be competitive in order to grow as an industry leader. Training and developing your small workforce is a good investment and will undoubtedly bring better results for your business in the long term.

 

5. Advertising

Promotion is essential for small businesses to gain recognition and successfully progress. It can be difficult to source new customers and clients, but a business loan effectively allows you to invest in the advertising required to achieve this.

Getting a business loan – why choose us?

Small businesses are the heart and soul of the UK economy. As leaders in the financial service sector, we are best positioned to provide unparalleled unsecured business financing you can trust.

SME Loans and the lenders that we work with are regulated and approved by the Financial Conduct Authority and our commercial directors take pride in helping small businesses find the right loan. We keep it simple and do the hard work for you. Through SME Loans:

Your business can receive a small business loan in the UK for as much or as little as it requires. Choose an amount between £1,000 and £500,000.

• We don’t charge any fees, ever. It is free for you to make an application through our website.
• You can benefit from knowledgeable and experienced account managers and commercial directors who truly care about your business’s future.

Is my business eligible for a small business loan?

There are over 5.7 million SMEs in the UK. Research shows that small businesses are often reluctant to apply for funding in the fear they’ll be rejected. Thanks to the huge expansion of the alternative lending market, access to finance is available to more limited companies than ever before. Whilst we aim to help as many businesses as we can get the funding they deserve, we do have some basic eligibility requirements:

• Your business is officially registered in the UK
• You have been actively trading for a minimum of 6-months
• Your business has a minimum monthly turnover of £5,000
• You as the business owner is over the age of 18

What funding options are available to small businesses?

Merchant Cash Advance

A merchant cash advance differs from a business loan because there is no interest charged. Instead, you agree on a fixed upfront fee with the lender. With this option, lenders work directly with your business’ card payment processing company to analyse recent transactions.

The amount of money you are offered from a lender will be based on your average monthly card sales. Typically, the more money you make each month, the more money you will be able to borrow.

When it comes to paying the money back, repayments are taken automatically as a small percentage of future card sales. For each customer card transaction your business processes using a designated terminal, a small amount will be automatically withdrawn.

We offer businesses merchant cash advance that enables an instant cash injection between £5,000 and £500,000. You can then repay the money comfortably, using a small percentage of future customer card payments.

 

Revolving Credit Facility

Previously, small businesses could turn to business overdrafts to cover gaps in their cash flow. Overdrafts are getting increasingly difficult to secure, so an alternative source is revolving credit. Operating similarly to overdrafts, once a maximum amount of money has been established, business owners can access the pre-approved funds as and when required. With revolving credit, interest is charged on the amount withdrawn whilst it’s outstanding.

This option is a revolving cycle of withdrawing, spending and repaying that is typically limited to a period of 6 months – 2 years. Lenders calculate the borrowing amount based on one month’s revenue, but once you’ve made your first repayment, you are then able to borrow more.

With this type of borrowing, the main concern for lenders is the amount of regular cash flow in your business’ account – but be advised that with revolving credit, higher fees are charged than with fixed-term loans.

 

Short term vs long term business loans

Short-term business financing are usually offered for a period of 6 months to 2 years. The average short-term business loan is taken out for 12 months. Medium to long-term loans have longer lending agreements typically lasting between 1 to 5 years, and some up to 10 years.

Short-term loans are usually the better option for small business owners. The money is quicker to access, and repayments only have to be made for a limited period. Long-term loans generally take longer to get approved, but suit companies that need a longer amount of time to pay the money back.

What are the pros and cons of small business finance?

Secured Loans:

What are the pros of secured loans?

• You can typically borrow a lot more money with secured business loans, which can be useful for long term investments.
• Secured business loans are generally easier to obtain, particularly if you are deemed as a risk by the lender. This is because the lender has extra reassurance from the collateral they can claim if things go wrong and you don’t manage to make repayments.

What are the cons of secured loans?

• It takes longer to apply for and arrange a secured business loan than with other small business financing options. As there is an asset involved, you normally have to go through the process of organising a valuation and/or inspection, which means it will take longer for the loan to be approved.
• The main disadvantage of secured business loans is the potential to lose your asset if you can’t keep up with repayments. But if you have faith in the ways you are trying to grow your business, repayment shouldn’t be an issue anyway!

 

Unsecured Loans:

What are the pros of unsecured small business loans?

• The application process for unsecured business loans is faster and more straightforward than for secured ones. You don’t have to go through the extra processes involved with secured loans, which means you can access the money in a matter of days.
• As the loan is unsecured, you don’t need to provide collateral so you aren’t at risk of losing a valuable business or personal asset if you struggle to make repayments.

What are the cons of unsecured loans?

• Because unsecured loans aren’t backed by collateral, it’s harder for lenders to retrieve the loan if you default on repayments. As a result, lenders usually charge much higher interest rates on unsecured loans than secured loans.
• Unsecured loans work well if you are considering a loan for the short term. The amount of money you can borrow for your business is relatively low, so if you need to borrow a more substantial sum of money, you may be better off choosing a secured loan.

 

Business Cash Advance:

What are the pros of a business cash advance?

• Business cash advances are a great option if you have a bad credit rating. Lenders will assess your business based on the number of card sales processed each month. This means that a perfect credit score is not necessary, provided you are making good revenue each month.
• Cash advances are also one of the most affordable ways to borrow. The amount you repay directly parallels the amount your business earns, so there’s no pressure to repay the amount faster than your business can afford to.

What are the cons of a business cash advance?

• Before receiving your cash advance, lenders will want you to agree to their terms which can sometimes impact how you run your business. Depending on the lender, you might be asked to change card providers and agree not to change business premises until the money is fully repaid. However, as a short-term loan option, these requirements are only ever temporary.

 

Revolving Credit Facility

What are the pros of a revolving credit facility?

• Revolving credit is one of the most flexible forms of business funding. Unlike a loan, you only take the money when you need it and can repay and redraw as often as you like. As well as this, there is no long-term commitment. You can draw funds only once if needed and not use the facility again.
• One of the main advantages of using revolving credit is that you only pay interest when you use the money, rather than for the whole time you are using the facility. Unlike a loan, interest is only charged on the amount withdrawn as it is outstanding, so you are only paying for what you use.

What are the cons of a revolving credit facility?

• Revolving credit facilities typically run for 1-2 years, so they are also an example of short-term business financing. If you want to make greater investments or need longer-term funding, you might want to consider secured loans instead.
• With revolving credit, interest rates are higher than those charged on traditional business loans. However, this is offset by the fact that you only pay interest on funds when they’re withdrawn, so if used correctly, they can work out cheaper.

Thinking about getting a business loan? See how SME Loans can help your small business.

How can I make the most of my small business loan?

When it comes to your small business’ finances, keeping on top of admin is crucial. Sticking to a careful and concise budget will prevent you from making common business spending mistakes, and ensure that the money you have borrowed is used sensibly and effectively.

Where possible, it’s a good idea to keep the loan in a separate account from your usual business account, transferring the money across as and when required. This will prevent you from spending impulsively and increase your capacity to make bigger, important investments in the future.

• Don’t spend the money in one go. A sudden influx of cash can be exciting and overwhelming, so it’s important to stick to your business strategy and loan plans and spend the money wisely.
• Maintain a good rapport with your lender. Ensure you’re making all payments on schedule and update your lender on any issues or unforeseen circumstances you encounter with repayments.

What is the annual percentage rate on a small business loan?

As interest rates are determined by a series of factors, such as credit score, APR will vary between lenders. Therefore it is essential to clarify what the rate of interest is with the lender before you agree to the terms and conditions of the small business loan.

Lenders charge interest on money borrowed, which is calculated as a percentage of the loan. Where a business poses a ‘higher risk’, a lender will offer a higher interest rate to match the increased risk for lending.

What affects the interest rate on a small business loan in the UK?

When it comes to small business loans, lenders will assess your business profile in terms of risk factors, taking various factors into consideration. Interest rates depend on:

• The lender you’re matched with
• How long your business has been operating
• Your credit history
• Verified business history
• How much revenue your business is generating
• Your business plans and ventures

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