For larger sums like £50,000, 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 have 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.
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.
For a £50,000 business loan, you’ll usually (but not always) have to either secure it against business assets or sign a personal guarantee.
What are my options? Lump sums vs revolving credit
If you’re looking for a lump sum to be paid upfront, then options include the following:
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, consider the following options:
Invoice finance. There are two main types of invoice finance: invoice discounting and invoice factoring. With invoice discounting, the lender will use your unpaid invoices as collateral for your loan. With invoice factoring, 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 similarly to 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 £50k), and although it’s super-flexible, it’s usually a very expensive method of borrowing.
How can we help?
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Get live, personalised quotes on unsecured or secured loans from a large panel of lenders through our partner Think Business Loans.
At the time of writing, government-backed start-up loans are available up to a maximum of £25,000, but that’s per director – meaning two directors could apply to achieve the £50,000 goal. These loans can be a smart choice – with fixed, competitive rates and free mentoring, so regardless of how many directors your firm has, you may wish to consider a start-up loan as part of your financing plan.
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 £50,000 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
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 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. Short-term loans for a few months are widely available. It’s also possible to get loans with terms of 10 years or more. However, these are typically only available on larger sums and are harder to be approved for.
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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