Whether you need £20,000 up-front or to slowly grow your business over time, there’s a range of business finance options that could help. Here, we run through some of the most popular options available.
How can my business borrow £20,000?
If you’re looking for a lump sum to be paid up-front, your options include (but aren’t limited to):
A start-up loan. Government-backed start-up loans are available for sums of up to £25,000 to be repaid over terms of 1-5 years. They boast competitive, fixed interest rates and even come with free mentoring. Your business will need to meet certain strict criteria, including having been around for less than two years.
A standard, fixed-term business loan. With a traditional business loan you’ll have a lump sum transferred into your bank account and make monthly repayments on the balance for a pre-agreed length of time. These loans are available with fixed or variable interest rates.
A business cash advance. If you’re not sure when you’ll be able to pay back your loan because of fluctuating sales, consider a business cash advance. With this, you’ll pay back a fixed percentage of your sales until your debt is cleared. If business is booming, you’ll clear your debt faster. If things are slow, it’ll take longer. Either way, it’ll cost you 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.
Asset refinance. This option lets you unlock the capital held in existing assets – essentially by using them as security on a loan.
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If you’re looking for ongoing access to business credit, you may wish to consider the following options:
Invoice finance. There are two main types of invoice finance: invoice discounting, where the lender will use your unpaid invoices as security for your loan, or invoice factoring, where the lender will buy your unpaid invoices from you (at less than their full value).
A business line of credit. If you need the lump sum up-front, but still like the idea of ongoing credit, consider a business line of credit. This works in much the same way as a credit card or overdraft, as you only pay interest on the amount borrowed, but you’re typically offered a much higher credit limit.
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Depending on a lender’s assessment of your circumstances, you may be required to secure the loan. With a secured loan, you’ll put a business or personal asset up as collateral. If you fail to repay, the lender can recoup its losses by selling the asset.
With an unsecured loan, you don’t have to offer any collateral. That makes for a speedier process, but your business will need good credit and a healthy outlook.
A personal guarantee is a contract stating that you’ll be personally responsible for paying back a loan if your business is unable to do so. This is usually offered as an alternative to a secured loan.
How much does it cost to repay a £20,000 business loan?
Interest rate of 5% fixed p.a.
Interest rate of 10% fixed p.a.
Interest rate of 20% fixed p.a.
Monthly: £877.43 Overall: £21,058.27
Monthly: £922.90 Overall: £22,149.56
Monthly: £1,017.92 Overall: £24,429.99
Monthly: £599.42 Overall: £21,579.05
Monthly: £645.34 Overall: £23,232.37
Monthly: £743.27 Overall: £26,757.78
Monthly: £377.42 Overall: £22,645.48
Monthly: £424.94 Overall: £25,496.45
Monthly: £529.88 Overall: £31,792.66
How to compare £20,000 business loans
Here are some of the key factors to consider:
Overall cost. It can be easy to obsess over interest rates and fees (the annual percentage rate, or APR, is designed to provide a benchmark for comparison, taking into account both interest and any mandatory charges), but more importantly, how much is this loan going to cost your company overall? When you’re trying to identify the best business loan, the loans that are cheapest overall are naturally a good place to start.
Duration of loan. This will normally be dictated by what you can afford to repay each month: borrowing for longer is the natural way to keep your monthly costs down, but don’t forget that doing so will usually push up the overall cost of borrowing.
Eligibility. Never apply for a loan without checking that the business is eligible for it. It’s a waste of time and demoralising, but what’s more, the application could be visible to future prospective lenders through your company’s credit record.
Security required. Does the finance require security, and if so, do you have a suitable asset that you’re willing to put forward?
Flexibility. Nobody knows what’s around the corner, let alone three or four years down the line. Different types of business finance offer different levels of flexibility, and even within the same class of product, different lenders will have different policies. If your business is volatile, flexibility should be high on your list of requirements.
Is my business eligible?
Eligibility terms will vary from lender to lender, but you can boost your chances of being approved for a loan by demonstrating:
A good personal credit score and business credit score
A consistent history of profits
A reasonable plan for paying back your debts
First and foremost, any lender will want to make sure that the monthly repayments would be comfortably affordable for the business, given its normal income and outgoings.
What about a broker/matching service?
“Matching services” are able to almost instantly check which lenders would offer you a £20,000 loan, saving you valuable time and stopping you from damaging your credit score via multiple failed applications.
Many brokers and matching services charge referral fees from lenders they refer customers to, so for the most part, they’re free for businesses to use.
However, this means they rarely have access to the full market – they’ll only refer you to lenders who have agreed to pay these referral fees. That means you may not be offered the very best deal you’re eligible for.
Frequently asked questions
Yes. There are lenders that specialise in providing finance for start-ups, although the best deals tend to be saved for established businesses.
It varies massively depending on the type of loan and the amount you’re borrowing. For a £20,000 loan, you can typically expect to pay off your balance between one and five years. Some shorter or longer terms may exist, although they’re not as common.
You’ll be asked what you’re spending the money on, but the lender is mostly concerned about your ability to repay the loan. If they’re convinced you’ll be able to comfortably meet your repayments, 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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