Brief guide to business loans




Brief guide to business loans

posted by: Jason Hulott

Like many another company, there are probably times when you need a business loan – to make up a temporary shortfall in your working capital or cashflow, launch a new project, re-equip your premises, or expand the business, to give just a few examples.

Here is a brief guide to the business loans you might be considering:

Bank loans

  • traditionally, the stalwart provider of much-needed finance for small businesses, the local high street bank has been one of the first ports of call;
  • they are conventionally seen as the original balance sheet lenders, because it seems to be the bank’s own money that is being lent and the bank therefore assumes all of the risks involved in borrowers defaulting on their repayments;
  • in fact, banks have worked on the long-established principal of accepting money from depositors and savers, in order to lend at least some of that money to borrowers;
  • it might be argued that it is those customers who are depositing their money with the bank, therefore, who are shouldering the risks inherent in lending to borrowers – since it is the bank, rather than its depositors, which assumes ultimate responsibility for those risks, it is called a balance sheet lender, as explained by investment company Basset & Gold;
  • since the financial crisis of 2008, however, banks have become increasingly wary – to the point of apparent reluctance – of lending to the many small and medium sized companies that once made up its principal borrowers;

New balance sheet lenders

  • fortunately, business loans have now become available from new providers prepared to shoulder the risks of balance sheet lenders;
  • entrepreneurs themselves, they are set up to make unsecured, short-term business loans to limited liability companies with a proven track record and a sound revenue stream – but, unlike traditional banks, work in concert with you the borrower to ensure that repayment schedules match your cashflow projections;
  • typically, loans may be granted from £5,000 up to £100,000, with repayment terms within a maximum period of 12 months;
  • most useful to many small and medium sized companies is the availability of these types of business loans entirely online – not only is this a convenience, but the streamlined and technology-backed systems allow applications to be processed very quickly;
  • your initial enquiry in principle, for example, is likely to be considered within a matter of minutes;
  • if this is favourable, you may make a formal application, which is then also considered and, if given the go-ahead, the requested funds are transferred directly to your company bank account within the next 48 hours or so;

Peer-to-peer lending

  • such balance sheet lenders should not be confused with peer-to-peer lenders – yet other newcomers to the market for business loans;
  • the latter are often popularly known as “matchmakers” since they match individuals and organisations wanting to invest or lend with those businesses wanting to borrow;
  • it is the individual “peers” who are taking the risks, therefore, and not the advertised lender, who merely facilitates the provision of loans from individual investors to borrowers.

Traditional lenders may have fallen somewhat out of favour, but new ones have steadily filled the vacuum with alternative sources of business loans for companies wanting to borrow.