Business Loans and Commercial Finance Options Explained


Business loans & Commercial Finance

What is a Business Loan ?

Traditional Business Loans, also called term loans. They are fairly straightforward in that you borrow a set lump sum of money. Usually this is for the purchase of a specific asset that your business needs.

These are mostly paid back over a set period of time and usually have fixed interest rates but they can be variable.

Will I qualify ?

A good proportion of businesses are able to qualify for a Business Loan.

There can be a bit of a misconception surrounding this.

Though business borrowing is never guaranteed as long as you have a good trading/track record, a good credit history and of course generate a certain revenue, you should qualify.

Your business fundamentals like credit history and financials play a more important role with business loans than others as they tend to have longer payment terms than other short term business finance products.

Most clients meet the below criteria…..

Business Loan

What documents do I need to apply ?

See the below list as an example of what may be required for an application…

Business Loan Bullets

How do Business Loans work ?

Most business wouldn’t say no to some extra cash. Equipment refresh, inventory or taking on new staff. The funds from a Business Loan would always be handy to have.

The key is finding a package that is affordable for your business.

From our experience in financial services we have insight into which applications will be successful and lead to facilities being agreed.

Say to most people the word Loan and they think of a Term Loan!

Term Loans are by far the most popular type of business loan available in the UK market.

The most important aspect for the lender is predictability.

The amount of money you get is predetermined as is the interest rate, which can be fixed or variable.

You then pay the balance back in installments over an agreed period of time.

Term Business Loans are simple in that they are not as complicated as other forms of business finance.

What are the different kinds of Business Loans ?

In the world of Business Finance not all Business Loans are the same.

There are many different terms available depending on your business needs. What does it need to grow? Do you have a good credit history? What kind of cash flow and revenue do you have?

They vary drastically with some being as short as 1 year with seasonal repayments up to 5 years with annual or monthly installments.

Interest rates also vary.

In summary traditional term loans cover a wide group of business finance products.

Banks are not the only lenders as many alternative business financing options have become available in recent years.

How do I apply for a Business Loan ?

Applying for and successfully getting a traditional Business Loan is not always straight forward and is by no means guaranteed. Especially if your credit history is less than perfect &/or you don’t have collateral to act as security for the loan.

Many loans make collateral as compulsory part of obtaining funds. If you are successful in obtaining a loan and can’t repay this, you risk losing the collateral.

A lender will not always ask for a specific entity to be used as collateral, they could put a ‘blanket lien’ on your business. Here the same risks still apply to not keeping up with payments.

This is an important point when applying for business finance. You need to be made aware of any applicable terms and conditions, penalties or fees that relate to your loan.

Put simply you need to work out a monthly payment you can afford with the lender.

Knowing your monthly payments is one of the biggest advantages of a term loan. It’s predictable.

Before applying you should be able to make a good judgement as to whether or not a Business Loan will assist your business in the long term.

Be careful of the calculations involved and forecast well for the repayment period.

What is a Blanket Lien ?

Firstly a Lien is a clause used in the event of non-payment. It gives the creditor the right to seize assets and collateral owned by the debtor. This can included nearly anything and gives the creditor a legal interest in the debtor’s assets.

A Blanket Lien can be seen as the most comprehensive protection for lenders. However the borrower does not receive much protection and can potentially lose everything if they forfeit on the agreement.

The difference between a ‘Lien’ and a ‘Blanket Lien’ is that a Lien tends to only give the lender legal rights to one specific asset.

For example if you borrowed money for a property mortgage and stopped making the repayments, the lender could apply the Lien clause to the house itself.

They could take the house as a last resort if you failed to keep up on repayments.

A Blanket Lien can apply to all of your assets. So if you took out a Business Loan and did not meet your obligations under this agreement the lending potentially has the power to seize almost anything in your name.

How much will a Business Loan cost ?

This will vary and lenders should provide a investigation when requested.

What are the benefits of Fixed Term Business Loans ?

The aim of a fixed term loan is to fund something your business requires to function, grow and succeed.

It can be a specific purchase, maybe for stock, working capital, meeting payroll and tax obligations.

There are few, if any loan restrictions for what the cash can actually be used for and vary from lender to lender.

It is best practice of course to inject the capital into your business. It does cost money to borrow so you want to use this injection to generate more cash during the term of the loan agreement.

Business Finance and Business Loans are aimed at taking your company to the next level.

What do I do next ?

Even for established businesses it is sometimes difficult to have the confidence to approach your bank. Or to know who to approach for finance and how to present a proposition to a lender.

This is where Shortform can help with your Business Loans & Commercial Finance proposition.

Please feel free to contact by telephone or the online enquiry form and we can guide you through the process.