£100,000 is no small sum, and it can make a huge difference to a growing business. There are a few different ways your company can get its hands on funding, and since the cost of borrowing will be significant, it’s worth looking at which option might best suit your unique situation. This guide will help you understand some of the popular options.
It’s worth noting that you’ll most likely be expected to provide security in some form – for example using a business or personal asset as collateral. Much like a mortgage, if you fail to repay the loan, the lender can sell the asset to recoup losses. Security mitigates some of the risk for a lender, which can mean better rates.
Realistically, secured loans take a little longer to fund, because the lender will need to verify the value of the asset that you put forward.
Did you know?
In 2018 Barclays doubled its limit on unsecured lending for SMEs to a cool £100,000. But expect getting approved without security to require excellent credit, detailed affordability checks and an extremely healthy growth curve from a well-established base.
Lenders may ask for a personal guarantee – which is where one or more directors make a legal promise to be personally responsible for a loan, in the event that the business fails to repay. Under this sort of agreement, you’ll be putting your personal finances on the line, but many lenders will insist on it.
When it comes to borrowing a lump sum upfront for your business, options include (but aren’t limited to):
A standard business loan. You’ll have a lump sum transferred into your bank account and make monthly repayments on the balance. The interest rate can be fixed or variable.
A business cash advance. Not sure when you’ll be able to pay back your loan because of fluctuating sales? A business cash advance could be a solution. With this form of business credit, you’ll agree to a fixed fee upon taking out the loan. Then, you’ll pay back a fixed percentage of every transaction until your debt is cleared. If business is booming, you’ll clear your debt faster, and if business is slow, it’ll take longer. Either way, it’ll cost the same amount.
Asset finance. With asset finance, you can spread the cost of assets for your business over a longer period. It’s more expensive than paying outright, but it could be a good way of accessing the latest equipment without a huge initial outlay. The assets can be repossessed if you stop making repayments.
If you’re looking for ongoing access to business credit, you could consider a business line of credit. These work in a similar way to a credit card or overdraft. You’ll only pay interest on the amount you need, when you need it, and the facility remains “open” even after you’ve cleared your outstanding balance, but the credit limits can be higher. Your credit limit will be determined by the lender’s assessment of your situation – including a credit search.
While the rates might be higher than those associated with a more traditional business loan, there’s usually much more flexibility.
£100,000 loan illustrations
Interest rate of 5% fixed p.a.
Interest rate of 10% fixed p.a.
Interest rate of 15% fixed p.a.
3 year loan
Monthly: £2,997.09 Overall: £107,895.23
Monthly: £3,226.72 Overall: £116,161.87
Monthly: £3,466.53 Overall: £124,795.18
5 year loan
Monthly: £1,887.12 Overall: £113,227.40
Monthly: £2,124.70 Overall: £127,482.27
Monthly: £2,378.99 Overall: £142,739.58
8 year loan
Monthly: £1,265.99 Overall: £121,535.23
Monthly: £1,517.42 Overall: £145,671.98
Monthly: £1,794.54 Overall: £172,275.89
What about a broker or matching service?
Brokers and matching services come with some handy advantages – not least the “hand-holding” element that’s so useful when navigating a tricky subject like business finance.
A good matching service will be able to instantly check which lenders would offer you a £100,000 loan, saving you valuable time and stopping you from damaging your credit score via multiple loan applications.
Brokers and matching services will usually get a referral fee from the lender you end up taking out a loan with, so the service doesn’t have to cost your firm a penny.
The downside? These services rarely have access to the full market, but will instead refer you to lenders from their panel of partners. That means you may not be offered the very best deal you’re eligible for.
Frequently asked questions
At the time of writing, government-backed start-up loans are capped at £25,000, but that’s per director, and a maximum of four directors can apply. With competitive, fixed rates, these loans can be a smart choice, so regardless of how many directors your company has, you may wish to consider a start-up loan as part of your financing plan.
Each lender will have their own eligibility criteria, but you’ll boost your chances by demonstrating a good personal credit score and business credit score. It helps if you’ve been in business for a long time and can show consistent history of profit. Providing collateral, applying for less money or applying for loans with a higher rate will boost your chances of being accepted.
There are lenders which specialise in providing finance for start-ups, although the best deals tend to be saved for established businesses. To borrow £100,000 you’re likely to need to have been trading for a number of years.
Your lender will ask what you’re planning to spend the loan on and look for proof that you’ll be able to comfortably repay it. If they’re convinced you’ll be able to repay the loan, lenders tend to be relatively lenient about what you spend it on.
Chris Lilly is a publisher at finder.com. He's a specialist in credit-based products including business and personal loans, mortgages and credit cards, and is passionate about helping UK consumers make informed decisions about their borrowing. In his spare time Chris likes forcing his kids to exercise more.
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