Business loans are tailored to the needs of that of the applicant. But before you can apply for funding to get you off the ground, or support your next phase of growth, you're going to need to investigate the best options for your needs.
So, secured? Unsecured? Peer-to-peer? Government funded loans? Or commercial mortgages? Before you can make a decision, it's important to learn the distinctions between each.
Secured Business Loans
With secured business loans, finance is secured against a property or other asset, which is used as collateral should you default on the repayments. This might be something like your home, or car and will need to be in-line with the amount of money you wish to borrow.
Maximum borrowing amounts and interest rates vary between providers, but the top end for lending can be around £150,000. Interest rates are generally lower than those of unsecured loans, with APR as low as 5%, but as with any insurance, the risk and the associated APR offered to you, will be based solely on your application and financial circumstances.
Unsecured Business Loans
Traditional unsecured loans are sought from banks and other similar financial institutions. The success of your application, the amount you can borrow, and APR offered will depend on the creditworthiness of you and your business.
You can borrow up to £25,000 with most lenders, and interest rates are generally a little higher than secured loans due to the increased risk for the lender. But on the other hand they carry less risk for you, as no assets are required to be fronted as collateral.
Government Funded Start-Up Loans
If you're just starting up, it'll be worth looking into the 'Start Up Loans Programme', which was launched in 2012 to help people who're struggling with financing the launch of their own business. Interest rates offered are low and at a fixed rate, but the maximum term of repayment is 5 years. As with unsecured bank loans, these loans are also unsecured, and offer a maximum loan of £25,000.
As with any business loan, you'll need to provide a business plan to justify the investment to the lender, before you can secure any money. The programme also offers support through a mentor, which could be invaluable for advice if you're just finding your feet in business.
Peer-to-peer Business Loans
Peer-to-peer loans are relatively new to the financial market, and it's now possible to secure peer-to-peer funding for businesses. Websites like Zopa offer lenders and borrowers the platform to interact directly, removing the need for banks and other middle men.
Because of this you can often find cheaper rates than you'd be offered on the high st. Loans are currently unsecured, and therefore you can borrow up to around £25,000 subject to the standard credit check.
If you're buying an existing business or premises, you may need to look for a commercial mortgage. Commercial mortgages have their own varieties and types, giving you even more research to do. But to sum up, as with regular mortgages, you can often borrow more than with a secured loan, and with the added benefit that the money is secured against the property or business itself, and not your home or other asset. For more information see our 'Beginners Guide To Commercial Mortgages'.