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These lenders all offer loans with minimum amounts of £5,000 or less. You can also compare each lender’s basic requirements both for annual turnover and how long your business has been trading.
Major banks tend to define “small business loans” as any fixed-term loan of up to £50,000 for businesses meeting specific size criteria. Typically, these loans are available to businesses whose annual turnover or volume of staff is below a specified threshold.
You can use a small business loan for a number of purposes, including purchasing new equipment, consolidating debt and growing your team. As you might expect, lenders will prefer to fund loans that are for developing a business and are backed up by a solid business plan.
Most small business owners would love to scale their company to increase profits, but they don’t have the capital lying around to do so. Small business loans can be the answer, particularly if you’re able to find a loan with a competitive interest rate and terms that suit you. There are a number of finance options available, and this guide will explore the options available to small businesses plus how to compare and choose the best deals.
With a small business loan, you’ll borrow a lump sum of £1,000 to £50,000 upfront. You will need to pay this back over an agreed term, usually with a fixed rate of interest. You can choose a longer loan term if you want to keep monthly repayments down, but bear in mind that the longer the loan, the greater the overall cost.
Most small business loans will be unsecured, but it’s fairly common for lenders to request a personal guarantee.
This type of borrowing can be suitable if you have a one-off expense with a set price and a dependable, steady income to cover repayments for the duration of the loan term.
Government-backed startup loans offer a competitive, unsecured, fixed-rate to individuals looking to start or grow a small business. You can apply online for a loan of between £500 and £25,000, and you will need to pay it back monthly over a term of one to five years. Successful applicants will additionally receive up to 12 months of free business mentoring.
After you apply for a small business loan, the lender will evaluate a number of factors to assess your eligibility, including the following:
Your business will also need to be based in the UK.
Lenders usually state their minimum eligibility criteria on their website, so it’s worth checking for this before applying for a loan to avoid disappointment and wasting your own time.
Both individuals and businesses have credit scores, and both are likely to be taken into consideration when you apply for a small business loan. Typically, the lowest interest rates will be reserved for individuals and businesses with excellent credit.
When you or your business pays off debts and bills in a timely manner, your credit score rises. Missing repayments causes your score to drop. If your credit score is below a certain level, you may be denied a loan completely, or you may need to offer security for the loan.
Whenever you apply for a loan, you’ll be credit checked, which will result in a small drop in your credit score. For this reason, it’s best to avoid making multiple applications in a short space of time. However, many lenders can run a “soft search” before you apply to give you an idea of the likelihood of you being approved for a loan.
Once you’ve found the best small business loan to meet your financial needs, you can apply using the following steps:
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