Business Loans

 

A business loan is a simple form of finance in which your business receives a lump sum of money from a bank or independent lender. This money is later paid back over a fixed period and you pay interest on top of the capital repayments. There are different forms of business loans which require different forms of security from business owners. 

    How does a business loan work?

    This form of finance is very simple. You can speak to Contact Business Finance about your funding requirements. This includes how much you need to borrow, what the loan is for, security available and a realistic plan for your business to repay the loan. Once we receive the relevant details, we will speak to our funding partners to find your business the best solution.

    At Contact Business Finance, we often find that sometimes there are other forms of finance best suited to a business rather than a traditional business loan. Business loans are simple, and everybody knows how they work. However, we make it our duty to listen to your business and explain all suitable funding options.

    Frequently asked questions

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    How much does a business loan cost?

    The cost of a business loan depends on the lender’s confidence in the businesses ability to repay the loan. Unsecured business loans are more expensive because the lender is not being given security from the business owner. Secured business loans are more competitive as the business owners are offering the lender security in the event of the business not being able to repay the loan. Business loans cost anything from 2-16% interest per annum.

    What are the advantages of a business loan?

    Cash boost – business loans offer your business a short-term cash injection. This money can be used to trade efficiently and invest in the business.

    Simple – everybody understands business loans as they have been around for many years. The terminology associated is also very generic and understandable.

    Less relationship – some business owners prefer to be left to their own accord. When a business takes a loan, providing the company is keeping up to date with payments, they very rarely hear from the lender.

    B2C – many methods of funding require businesses to trade with other businesses. However, business loans are available to businesses that also trade directly with the consumer.

    What are the disadvantages of a business loan?

    Early settlement fees – most lenders charge a fee if a business repays the loan within the term of the loan.

    Poor long-term option – although it is very nice for a business to have that short-term cash injection, business loans are not very useful long-term as the money can soon go. Before considering a loan, business owners should ask themselves what they will do when the money runs out. 

    Growth – a business loan does not grow in line with your business unlike other working capital facilities. Therefore, once a business runs out of money, their growth plans could be impacted.

    Higher chance of default – a business can take on a loan where they simply cannot afford the repayments. Business loans are often provided off the back of a set of forecasts. If business does not go to plan, loan providers still require the money back.

    What happens if my business cannot afford loan repayments?

    If a business cannot repay the loan provider it could lead to take legal action being taken against you, the borrower. Depending on what security the lender has taken for the business loan, business owners could find themselves in a situation where their personal assets are on the line. 

    What is the RLS?

    The recovery loan scheme is something which the government introduced in April 2021 to aid businesses that have been impacted by the coronavirus pandemic. This scheme replaced the coronavirus business interruption loan scheme (CBILS) and the bounce back loan scheme (BBLS) that were present during the height of the coronavirus pandemic.

    How much money can my business borrow?

    How much your business can borrow depends on the ability of the business to repay the loan. Most commercial loans start at £20,000 and range up to £50 million.

    What alternative funding methods are there other than a business loan?

    There are many alternative funding methods out there available to business owners. The most important question to ask when looking for funding is ‘What is the funding is required for?’. Once a business owner knows what the funding is required for and for how long such support is needed, the next decision to make is what source of funding best suits their needs. This is why Contact Business Finance takes the time to understand the ongoing needs of clients first. Without doing this, we cannot tailor the most suitable facility for the business.

    Can a new start business apply for a business loan?

    New start businesses can apply for a business loan. Business loans are available to any creditworthy company including start-ups. All lenders have different sets of criteria. In summary, their appetite will be based on affordability and how likely the business is to repay the loan. Unfortunately, statistics prove that new start businesses quite often fail. Therefore, it is very important for a new start business to have a clear business plan to give the lender confidence that they will succeed.

    How long can my business have a business loan for?

    The term of the loan can vary. Typically, business loans are available from 12 months to 72 months (1-6 years).