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Choosing your business loan

by PlanWriter | on January 18th, 2015

Businesses of different sizes will need access to funds at some point and one way of sourcing this funding is through a business loan from a bank. The loan may be used for many different reasons, such as to ease cash flow at a particularly difficult part of the year or to fund business expansion. Alternatively a business may need to pay a one-off expense without compromising the ability of the business to continue to pay its day to day expenses. As with everything, it pays to shop around and invest some time in looking carefully for the best deal.

Shopping around for the best deal

Price comparison websites could be a useful starting point to find out any current offers which are being marketed by the major high street banks. Usually the interest rates on a particular loan is dependent upon the business which is applying for a loan. Therefore, the rate which is actually offered would be apparent once the application for the loan was made.

A business loan is designed especially for a business and it is similar to a personal loan. The business is lent a certain amount of money at a fixed interest rate, over an agree period of time and the business pays the loan back in a series of monthly payments. Some business loans may allow a small sum over a short period of time, while others allow a much larger sum to be borrowed a much longer period.

It is worth finding out as much as possible about the lenders and types of loan which are available to a particular size of business. Some lenders specialise in offering loans to a certain business size or stage in its development. For example, one lender may specialise in offering small business loans, while another lender focusses on issuing loans to start-up businesses.

Getting the loan

It is true that business loans from the major banks are now harder to come by than they were previously, but they are still available. It is important that the bank is provided with a well-prepared business plan and all the necessary work has been done to support the loan application.

Business loans usually have terms and conditions which are negotiable and usually individually priced. The loan will depend on the business that is borrowing the money and factors such as the balance sheet, accounts and future business plans and forecasts. It is vital therefore that a business looking for a loan has a well-written professional business plan to hand. Some companies use the services of a professional plan writer to ensure that the business plan is optimised for funding. Once the credit risk has been assessed, the bank will be able to offer the business a loan at a particular interest rate. The larger the amount of money and the longer the term of the loan, the more interest will be paid.

High street bank loans

RBS and Natwest have business loans available for small and medium enterprises that can be taken out over a term of up to 25 years. Some business loans will only be available to limited companies whereas banks, such as RBS and HSBC, are currently offering loans that are suitable for other types of businesses such as sole traders and partnerships. Both Natwest and RBS are currently offering a small business loan from £1000 up to £25,000 which can be taken out between a term of between 1 and 10 years. There aren’t any arrangement fees or security fees to be paid on this loan and there is also a 1% discount on the borrowing rate applied to the loan for RBS/Natwest Royalties Business customers.

HSBC will also lend small businesses between £1000 and £25,000 which can also be paid back over a period of between 1 and 10 years. There is a one-off arrangement fee of £100 and the annual interest rate on the loan is from 7.9%, although the actual rate which the bank is willing to lend may be much higher. Again, the actual interest rate applied to the loan will be dependent upon many difference factors.

Santander is offering a business loan to small businesses that have an annual turnover of up to £250,000. They are currently offering loans between £1000 and £25,000 which can be paid over a period of between 1 and 5 years. There is a one-off arrangement fee of £100 and the annual interest rate on the loan will be between 7.9% and 12.9% per annum.

Currently Yorkshire bank is offering business loans of between £25,000 and £10 million. They offer the option of fixed or variable interest rates or even a mix of both. The loans are currently available on a term of up to 15 years for a variable rate and up to 5 years on a fixed interest rate. These loans may require an arrangement fee to be paid. The individual interest rate which is applied to the loan is dependent on the circumstances of the business.

There are a variety of different loans offered by the Bank of Scotland including base rate loans, which vary with the bank of England base rate and fixed rate loans. An arrangement fee is payable on each type of loan and the amount and length of term varies according to the type of loan which is taken out. Most of the loans have a minimum amount which can be borrowed which is £1000 for a base rate or fixed rate loan, to £50,000 which is the minimum for an SME loan.

Other banks such as Aldermore also have a range of financial products which may be ideal for some businesses to lend from to develop and grow the business. Although a relatively new bank, they have lent over £2 billion pounds to businesses since 2009; this make them one of the fastest growing banks in the UK.

Research is vital to success

The most important thing is to fully research and prepare to make the right loan application for the business. You should ensure your business plan writing team understands the importance of the funding to your business, and can come up with a professional, well thought out business plan that truly reflects your business as it stands, with a clear path for growth. This will ensure you have the best chance of funding once you’ve decided on which loan to go for.