Lombard Business Finance
- Suitable for sole traders, partnerships and limited companies
- Choose between hire purchase and contract hire options
- Tailored monthly payment plans
- Finance payments may be VAT recoverable
Comparison of lenders
Whether you need a £25k lump sum up front, or simply need the financial breathing room to focus on growth, there’s a range of business finance options that could help. This guide will help you understand the choices.
Secured business loans and personal guarantees
For larger sums, lenders may look to secure the loan against a business or personal asset, such as property or equipment. Much like a mortgage, if you fail to repay your loan, the lender can sell the asset to recoup any losses.
Realistically, a secured loan can take a little longer to fund, because the lender will need to verify the value of the asset that you put forward. The benefit is that having security can mitigate some of the risk for a lender, which can mean better rates. However, if you or your business has bad credit, then putting up some collateral as security might be the only way to get approved.
An unsecured loan doesn’t require you to put anything forward as collateral, but you’ll probably need good credit, healthy growth and a number of years of successfully trading under your belt – especially to get a decent rate or a larger sum. Not needing security generally means a faster turnaround – potentially even the same day.
Learn more about secured vs unsecured business loans
Another option is a personal guarantee – which is where a director makes 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.
Learn more about personal guarantees
For a £25,000 business loan, you may be asked to either secure against business assets or sign a personal guarantee.
What are my options? Lump sum vs revolving credit
If you’re looking for a lump sum to be paid upfront, your options include:
- A startup loan. Government-backed startup loans are available up to a maximum of £25,000 to be repaid over a term of 1-5 years, and come with free mentoring and a fixed rate of 6% (so on a three-year loan, that’s around £760 a month).Check your eligibility for a Start Up loan
- 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.Check your eligibility for a business loan
- 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.Check your eligibility for asset finance
If you’re looking for ongoing access to business credit, 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 collateral for your loan, or invoice factoring, where the lender will buy your unpaid invoices from you (at less than their full value).
If you need the lump sum upfront, but still like the idea of ongoing, flexible credit, consider these options:
- Business credit card. A business credit card will allow you to make purchases and overspend by your agreed credit limit. If you don’t repay your balance in full before the end of the month, you’ll be charged interest.
- Business line of credit. A line of credit works in much the same way as a credit card or overdraft, as you’ll be given a credit limit and only pay interest on the amount borrowed. While the rates might be higher than those associated with a more traditional business loan, there’s more flexibility: subject to agreed limits, you only borrow what you need, when you need it, and you repay when it suits you.
A business overdraft is another flexible line of credit that you may wish to consider, but it won’t typically be available for large sums like £25,000, and although it’s super-flexible, it’s usually a very expensive method of borrowing.
How to compare £25,000 business loans
Here are some of the key factors to consider:
- Total costs. 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.
- Terms available. 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 – and the application could be visible to future prospective lenders through your company’s credit record.
- Security required. It’s not unusual for lenders to ask for a personal guarantee – meaning an individual will be personally responsible for the loan. Security can also take the form of a company’s realisable assets, such as a property, vehicles or equipment. Where no assets are available, it may be necessary to secure the loan on a director’s own property.
- 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.
£25,000 loan illustrations
| Interest rate of 5% fixed p.a. | Interest rate of 10% fixed p.a. | Interest rate of 20% fixed p.a. | |
|---|---|---|---|
| 2 year loan | Monthly: £1,096.78 Overall: £26,322.83 | Monthly: £1,153.62 Overall: £27,686.96 | Monthly: £1,272.40 Overall: £30,537.48 |
| 3 year loan | Monthly: £749.27 Overall: £26,973.81 | Monthly: £806.68 Overall: £29,040.47 | Monthly: £929.09 Overall: £33,447.23 |
| 5 year loan | Monthly: £471.78 Overall: £28,306.85 | Monthly: £531.18 Overall: £31,870.57 | Monthly: £662.35 Overall: £39,740.83 |
£25,000 business loan calculator
This tool is designed to help you estimate the monthly and overall costs of borrowing £25,000. You can adjust the duration of the loan and the interest rate to get a better idea of what would be affordable. Our calculations assume that any fees involved are bundled in with the loan amount and repaid over the same term, at the same rate. Refer to your loan agreement for exact repayment amounts as they may vary from our calculations.
Interest rate
Loan term
Fees
Your loan would cost around £ each month and £ overall.
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 £25,000 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
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.
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