Many businesses turn to business loans as a reliable source of financing. However, navigating the world of business loans can be daunting. With various options available, it’s essential to arm yourself with knowledge before diving in. In this blog, we’ll provide you with everything you need to know about a business loan.

Types of business loans

Before you start the loan application process, it’s important to understand the different types of business loans available. Here are some common options:

  • Term loans

    These are traditional loans with fixed terms, interest rates, and monthly payments. They could be suitable for financing projects, equipment purchases, or expansion. The term length can vary depending on the type of loan you opt for, for example you could access a long term loan (up to 5 years repayment), or a short term loan (up to 2 years repayment).

  • Lines of credit

    Lines of credit provide flexible access to funds that you can draw upon as needed. They’re great for managing cash flow and covering short-term expenses.

  • Invoice finance

    If you have outstanding invoices, you can use these as security for a loan in the form of invoice finance. Invoice finance can help you access cash quickly and manage your working capital effectively.

  • Asset finance

    Asset finance offers a way for your business to purchase assets, such as equipment, machinery, or a new vehicle, without a large upfront cost.

Eligibility criteria

Each lender may have specific eligibility criteria, but some common requirements include:

  • A strong credit history for you and your business. You can read tips on how to improve your business credit score here.
  • Financial statements, including the latest set of filed accounts, balance sheets, and cash flow projections.
  • Collateral, depending on the type of loan and lender’s requirements. This could be in the form of a property or assets on your business’ balance sheet. If you choose not to offer collateral, you could access an unsecured business loan, but be conscious that this may have less favourable terms due to increased risk for the lender. 

Tips for success 

To successfully obtain a loan, it’s important to understand why your business is looking for a loan and what you intend to use the funds for. This will help to determine which type of loan may be most suitable for you and will help to demonstrate to any lenders that you have a well defined purpose. 

It’s also important to consider a loan amount that will be both useful and affordable for your business. You could consider putting together a cash flow projection to see what will be feasible in terms of your monthly repayments.

Your business credit score will play a vital role in determining whether you can access a business loan and at which rates. Before applying, speak with your usual UHY advisor to view your business credit score. If needed, we can also help you to improve your credit score. 

The application process

Now that you know your loan options and what lenders typically look for, we can help you to apply for a business loan. We are partnered with Capitalise, a business funding platform designed to help small businesses. Just get in touch to see how we can start your business loan application.