Frequently Asked Questions
CAN...
To an extent, the nature of your conviction will have a bearing on your ability to get a business loan, but you won’t be surprised to learn that this can be difficult. The interest rates can also be expensive relative to those available to people without the same history.
There are specialist lenders, known as responsible finance providers, that work in local communities to help people get back on their feet, perhaps after a custodial sentence, and it could be worth talking to them first.
If you have a business idea, can introduce some capital into it and have a reasonable credit history, there is no requirement for you to have a conventional job to qualify for a business loan. Indeed, many entrepreneurs don’t work for other people.
Of course, a long period of unemployment can often mean that savings are exhausted and credit histories become impaired, which can make securing a loan to start a business difficult. There are specialist lenders, known as responsible finance providers, that work in local communities to help people get back on their feet, perhaps after a period of unemployment, and it could be worth talking to them first.
Yes, business loans are available for the self-employed and your lender is likely to assess your requirements and credit worthiness in a similar way to a personal loan if you’re not operating as a limited company,
Talk to us about business loans for the self employed.
If the reason that you don’t have bank statements is that you don’t have a business bank account, you will find it very difficult to get a business loan from a reputable source. If your reason for not sharing your statements is linked to concerns about privacy, it will take a very convincing business case based on all the other fundamentals of the loan. Naturally, your own bank won’t ask for statements as it will have direct access to the information it needs. The evolution of Open Banking allows data to be shared with other lenders without the paperwork, but this can only be done with your explicit consent.
The lenders in the market all set their own credit criteria and some will be more accommodating of bad credit histories than others. There are also specialist lenders, known as responsible finance providers, that work in local communities to help people get back on their feet, perhaps by starting a business with a business loan.
The interest rate on any loan you do secure is likely to be quite high and we recommend seeking advice before committing yourself to a high interest loan that could cause difficulties for you later on if you struggle with the repayments. There are lenders who will take advantage of your circumstances with high cost, easy credit so it is important to have a knowledgeable person in your corner.
100% loans are available, but you will have to give your lender a good reason why you aren’t making any contribution of your own. The lender views your contribution as your willingness to share the risk and could be nervous if it believes you aren’t willing to take any risk at all. A contribution also shows that your business has the ability to generate surplus revenues which can be used to fund the repayment programme.
Talk to us about the options available for 100% business loans.
Yes, business loans with a wide variety of payment programmes are available. These can include lump sum repayments at the end of the loan (sometimes referred to as a bullet repayment or balloon repayment) or repayment holidays during the term. Some lenders will allow seasonal repayment structures if your cash flow operates in this way. In most circumstances, you will have to keep up to date with the interest during any period of reduced repayment, but interest roll-up can be negotiated in some situations.
Talk to us about finding a deferred payment structure that suits your business.
Yes, business loans can be unsecured if your trading history and relationship with your bank or finance provider is strong enough. The rates for unsecured loans are typically higher than for secured loans, but you might consider it a price worth paying for the freedom it gives.
Talk to us about whether an unsecured business loan is likely to be available for your business.
For ordinary commercial loans, a personal guarantee is normally sought as a matter of course, but these can be waived if your credit is strong and the lender is keen to compete for your business.
Loans of under £250,000 taken under the Recovery Loan Scheme do not require a director’s guarantee.
Talk to us about whether a business loan without a personal guarantee is likely to be available for your business.
Business loans can be written off, but it will be a very reluctant action by any lender and only taken after all other options have been investigated, including realising any security or even selling the loan on to another lender. You could find the fact that your business had a loan that was written off will follow you around in future. If you have a loan that you can’t repay, we recommend seeking professional advice from an accountant or insolvency practitioner at the earliest possible opportunity.
WHAT...
The best type of business loan for you will be determined by what you want the money for. Working capital is often best dealt with by a flexible overdraft type product that you can dip in and out of as you need to. A recurring need for working capital might be better met by an invoice finance or factoring solution.
Asset purchases, e.g. vehicles or machinery, are often most suited to hire purchase or leasing where the lender will see their primary security as being in the asset itself.
An investment in growth, e.g. new offices, purchase of another business or even an expansion of staff is probably best dealt with by a loan with the length of the loan and the repayment arrangements matched to your requirements and cash flow.
Talk to us about how to find the best type of loan for your business.
The minimum you can borrow is £1,000.
The interest rate is set by the lender and will be determined by the product you choose and the lender’s assessment of the risk. The government has directed that the maximum interest rate a lender can charge is 14.99% per annum, including all fees.
The Enterprise Finance Guarantee (EFG) has now been largely superceded by the Recovery Loan Scheme, albeit it is still available.
The EFG is a government initiative to help small businesses that don’t have enough security obtain the finance they need from lenders.
The Government provides a guarantee to the lender for 75% of the outstanding debt and this can be enough reassurance for the lender to turn a “no” into a “yes”. You must still convince the lender that you have a viable business and can repay the loan.
Guarantees are available on most lending products for amounts of between £1,000 and £1.2m and over terms of three months to 10 years.
A Guarantee Fee of 2% of the outstanding sum is payable each year to the government in addition to any interest and charges that you must pay to the lender.
There are more than 40 EFG accredited lenders in the UK, from High Street banks to alternative lenders and we can introduce your requirments to most of them.
A finance lease is very similar to a loan where the rentals are calculated to recover the full cost of the asset plus interest over the term. With an operating lease, the leasing company will take a risk in the resale value of the asset and factor this into the rental calculations.
A finance lease is very similar to a loan where the rentals are calculated to recover the full cost of the asset plus interest over the term. With an operating lease, the leasing company will take a risk in the resale value of the asset and factor this into the rental calculations.
Interest roll-up is when a lender agrees that the repayment of capital and interest can be deferred for a period, possibly until the end of the loan term. In this period, you won’t make any repayments at all. Interest will continue to be added to the loan monthly, weekly or possibly daily.
In this situation you should make sure you understand the impact of compound interest, namely you will be paying interest on the interest each time a new interest amount is added. Compound interest can become very expensive, so make sue you fully understand the terms and cost of any agreement that you enter into.
Talk to us about negotiating an interest roll-up agreement that suits your business.
If you are having difficulty meeting the repayments on a business loan, the first thing you should do is talk to the lender. You will often find them willing to help you out if you explain your circumstances. Options could include restructuring the loan over a longer term to reduce the payments or even providing a short repayment holiday during which you will only need to cover the interest.
Should the situation be more serious, the lender could start to commence default procedures. There will normally be a series of letters in the lead up to this so the lender’s action shouldn’t come as a surprise when it happens. The lender will firstly transfer the debt to its specialist recoveries department who will try and find an alternative way for you to repay your loan. If this fails, they have the option of formally calling up the loan and proceeding to realise any security. The courts and/or a receiver could become involved at this point if steps are needed to realise security or wind your business up.
If you have a loan that you can’t repay, we recommend seeking professional advice from an accountant or insolvency practitioner at the earliest stage. Very difficult situations can be resolved if the right advice is taken early enough.
Business loans can be used for a great many reasons, but here are some of the most common ones:
- Increasing working capital to cover day-to-day operating costs
- Buying a new building
- Buying another business or franchise
- Buying assets e.g. cars, vans, computers or plant and machinery
- Bridging the receipt of money from another source e.g. a land sale or tax refund
- Paying taxes
- Buying out another shareholder or partner
In most cases, you will be looking at a loan as a means of developing and growing your business, but there will be occasions when a loan is needed to meet a pressing bill or to keep the business afloat through a tough trading time. This is a legitimate purpose, but you need to be comfortable in your own mind that you can meet the repayments. Putting off until tomorrow, what needs to be addressed today is rarely a good idea and it is worth seeking professional help if you are not sure what to do.
Talk to us about the purpose of the loan you are looking for and let us guide you on your options.
The terms on a business loan, sometimes known as a business loan agreement, are the conditions on which the loan is made available. These will include, amongst other things, the interest rate and any fees, the repayment arrangements and the security. There will also be a lot of small print covering the procedures and your rights in the event of default so it’s important that you read them closely and get legal advice if you need it before signing into anything.
Talk to us about the terms you have been offered or about finding the best terms for your business.
Interest rates can vary widely on business loans and will be influenced by a number of factors, including the risk the lender sees in the trading performance of your business, the security that is available, the purpose of the borrowing and the length of time the loan is needed for. Interest rates on short-term, working capital type facilities are typically higher than for long term products such as a commercial mortgage.
The overall cost of a business loan can also be increased by arrangement fees, service charges and early repayment fees so it is important that you understand all the costs when comparing one facility or provider against another.
Talk to us about how to compare and secure the best rates for your business.
Secured business loans are loans against which an item of security or collateral has been pledged to the lender as a back-up in the event of default. There are lots of different security options including a mortgage over land or property, a charge over an asset e.g. a car or other valuable item, and a charge over all the assets of your business (called a debenture). A personal guarantee is also a form of security. Lenders differ over whether they term a personal guarantee as security or not, but there should be no doubt in your mind that it is security and the lender will have the power to pursue you and your personal assets in the event that the primary debtor, for example your business, defaults.
Talk to us about how to find the most favourable secured business loans for your business.
The Enterprise Finance Guarantee (EFG) has now been largely superceded by the Recovery Loan Scheme, albeit it is still available.
The EFG is a government initiative to help small businesses that don’t have enough security obtain the finance they need from lenders.
The Government provides a guarantee to the lender for 75% of the outstanding debt and this can be enough reassurance for the lender to turn a “no” into a “yes”. You must still convince the lender that you have a viable business and can repay the loan.
Guarantees are available on most lending products for amounts of between £1,000 and £1.2m and over terms of three months to 10 years.
A Guarantee Fee of 2% of the outstanding sum is payable each year to the government in addition to any interest and charges that you must pay to the lender.
There are more than 40 EFG accredited lenders in the UK, from High Street banks to alternative lenders and we can introduce your requirments to most of them.
Interest roll-up is when a lender agrees that the repayment of capital and interest can be deferred for a period, possibly until the end of the loan term. In this period, you won’t make any repayments at all. Interest will continue to be added to the loan monthly, weekly or possibly daily.
In this situation you should make sure you understand the impact of compound interest, namely you will be paying interest on the interest each time a new interest amount is added. Compound interest can become very expensive, so make sue you fully understand the terms and cost of any agreement that you enter into.
Talk to us about negotiating an interest roll-up agreement that suits your business.
Secured business loans are loans against which an item of security or collateral has been pledged to the lender as a back-up in the event of default. There are lots of different security options including a mortgage over land or property, a charge over an asset e.g. a car or other valuable item, and a charge over all the assets of your business (called a debenture). A personal guarantee is also a form of security. Lenders differ over whether they term a personal guarantee as security or not, but there should be no doubt in your mind that it is security and the lender will have the power to pursue you and your personal assets in the event that the primary debtor, for example your business, defaults.
Talk to us about how to find the most favourable secured business loans for your business.
The terms on a business loan, sometimes known as a business loan agreement, are the conditions on which the loan is made available. These will include, amongst other things, the interest rate and any fees, the repayment arrangements and the security. There will also be a lot of small print covering the procedures and your rights in the event of default so it’s important that you read them closely and get legal advice if you need it before signing into anything.
Talk to us about the terms you have been offered or about finding the best terms for your business.
Interest rates can vary widely on business loans and will be influenced by a number of factors, including the risk the lender sees in the trading performance of your business, the security that is available, the purpose of the borrowing and the length of time the loan is needed for. Interest rates on short-term, working capital type facilities are typically higher than for long term products such as a commercial mortgage.
The overall cost of a business loan can also be increased by arrangement fees, service charges and early repayment fees so it is important that you understand all the costs when comparing one facility or provider against another.
Talk to us about how to compare and secure the best rates for your business.
The best type of business loan for you will be determined by what you want the money for. Working capital is often best dealt with by a flexible overdraft type product that you can dip in and out of as you need to. A recurring need for working capital might be better met by an invoice finance or factoring solution.
Asset purchases, e.g. vehicles or machinery, are often most suited to hire purchase or leasing where the lender will see their primary security as being in the asset itself.
An investment in growth, e.g. new offices, purchase of another business or even an expansion of staff is probably best dealt with by a loan with the length of the loan and the repayment arrangements matched to your requirements and cash flow.
Talk to us about how to find the best type of loan for your business.
Business loans can be used for a great many reasons, but here are some of the most common ones:
- Increasing working capital to cover day-to-day operating costs
- Buying a new building
- Buying another business or franchise
- Buying assets e.g. cars, vans, computers or plant and machinery
- Bridging the receipt of money from another source e.g. a land sale or tax refund
- Paying taxes
- Buying out another shareholder or partner
In most cases, you will be looking at a loan as a means of developing and growing your business, but there will be occasions when a loan is needed to meet a pressing bill or to keep the business afloat through a tough trading time. This is a legitimate purpose, but you need to be comfortable in your own mind that you can meet the repayments. Putting off until tomorrow, what needs to be addressed today is rarely a good idea and it is worth seeking professional help if you are not sure what to do.
Talk to us about the purpose of the loan you are looking for and let us guide you on your options.
If you are having difficulty meeting the repayments on a business loan, the first thing you should do is talk to the lender. You will often find them willing to help you out if you explain your circumstances. Options could include restructuring the loan over a longer term to reduce the payments or even providing a short repayment holiday during which you will only need to cover the interest.
Should the situation be more serious, the lender could start to commence default procedures. There will normally be a series of letters in the lead up to this so the lender’s action shouldn’t come as a surprise when it happens. The lender will firstly transfer the debt to its specialist recoveries department who will try and find an alternative way for you to repay your loan. If this fails, they have the option of formally calling up the loan and proceeding to realise any security. The courts and/or a receiver could become involved at this point if steps are needed to realise security or wind your business up.
If you have a loan that you can’t repay, we recommend seeking professional advice from an accountant or insolvency practitioner at the earliest stage. Very difficult situations can be resolved if the right advice is taken early enough.
The minimum you can borrow is £1,000.
Yes!
Your business is liable to repay the loan in full by the end of the agreed term, which is a maximum of six years.
If your business gets into difficulty and cannot meet the repayments, your lender will try to recover the debt from your business. Only then, can it claim under the government guarantee for any shortfall. Lenders aren’t, however, allowed to see personal guarantees from directors or try to recover the debt from a director’s personal assets, for example, the family home.
HOW...
The maximum amount you can borrow is £10m. Naturally, the maximum applicable to your business could be less than this and determined by your ability to repay.
The amount you can borrow on a business loan will be affected by:
The purpose – a lender is likely to have upper limits against the value of the asset you are purchasing or developing
Your businesses’ credit history – a business with a strong credit history will typically find lenders willing to advance more to it than a weaker business
Your contribution – the more of your own money you are seen to be putting in, the more the lender is likely to see you sharing the risk and be willing to advance more.
The value of any security – similar to the purpose above, lenders will apply standard valuations to security, be it land or floating assets like book debts, and limit the amount you can borrow according to the level of security cover they feel they need.
Talk to us about the amount you want to borrow on a business loan.
The original maximum term was six years, but you can now repay a Bounce Back Loan over as long as 10 years by discussing it with your lender.
No repayments are required in the first 12 months. You then have the option to pause repayments completely for another period of 6 months. Following that, you can move to interest-only payments for a period of 6 months once repayments start (you can use this option up to 3 times).
Business loans can be repaid over anything from a few months to 30 years. The repayment period will normally be tied to the purpose of the loan. A bridging loan to cover the sale of a property, or a development loan to allow a property to be built will probably be over 6 – 18 months. A commercial mortgage could be for 30 years. A straight forward business loan for equipment or to fund growth is more likely to be over 3-5 years, possibly 10.
The normal rule of thumb is that the longer the loan is over, the lower the repayments will be and the higher the overall interest cost. You can, however, reduce the repayments on a shorter term loan if there is an event at the end of it that will allow a lump sum repayment. This could be the sale of a property, or even the business itself.
Talk to us about your circumstances and let us help you negotiate a repayment profile most suited to you.
The best place to start is by filling in our online application form, which will guide on the type of loan that you is likely to suit your needs and some of the lenders that might be able to help. If you are happy with what you see, simply continue to follow the process.
Alternatively, if you would rather talk to somebody, please request a callback here and we will happily offer our advice and guide you through the process.
Regional Growth Loan Schemes, supported by the Department for Business, Energy and Industrial Strategy, are designed to help eligible businesses that can show strong growth potential and have a medium to long-term funding requirement to deliver that growth.
Funds are administered on behalf of the government by not-for-profit Community Interest Companies (C.I.C’s), such as FSE Group.
Enquire directly to FSE Group to see if a fund is available in your region and what the eligibility criteria are.
Business loans typically involve the advancing of a capital sum which will be paid into your bank account for you to then spend on the agreed purpose. Sometimes the money will be sent directly to the seller of whatever you are buying e.g. a car dealership for a car. The loan will then be repaid in full by regular instalments over the agreed term.
There are many different variations on this model though. Some loans will only require you to pay the interest with the lump sum being repayable at the end (often referred to as a bridging loan); other loans will require you to pay a reduced monthly repayment with part of the capital deferred until the end. This is often referred to as a bullet or balloon payment and is common in the car finance market.
Talk to us about the type and structure of loan that is most likely to work for you.
ARE...
The interest that you pay on a business loan will normally be considered a business expense, which will reduce your net profit and hence any corporation tax liability. The capital repayments are a cash flow item and not deductible as an expense.
If tax efficiency is important to you, you may want to consider leasing or contract hire. With these products you pay a monthly rental to use the asset and this rental is normally fully deductible as a business expense.
You should talk to your accountant for advice on your individual circumstances.
Providers of business loans are normally regulated by the Financial Conduct Authority (FCA) although this isn’t a requirement for all types of lending. Invoice Financing, for example, is a non-regulated activity from an FCA perspective.
Whether the provider is regulated our not, you should always borrow from a recognised and reputable provider who will deal with you transparently and fairly, particularly in the event of difficulties. At Productivity Finance, we only deal with respectable lenders.
Very possibly and it is normal for a lender to do personal background checks on the directors of a business. Your lender’s primary interest will be in the creditworthiness of your business and its ability to repay, but it could well take the directors’ ability to run their personal affairs into account, particularly where there is a personal guarantee involved.
WILL...
Banks have been the main providers of business loans for very many years and are still the largest lenders to businesses by far. If your credit history and relationship with your bank is good, it is invariably the right decision to approach your bank first.
Banks though aren’t the only option, whatever your credit status. There is a broad array of alternative lenders in the market that have developed products that are specifically tailored to a particular need and it could be one of these that will suit your needs better.
Talk to us to help you navigate all of the business loan options available.
For loans below £250,000, accredited lenders are forbidden from asking directors for personal guarantees. Above £250,000 the need for a director’s guarantee is probable, but the lender cannot ask for it to be supported with a charge over the director’s principal home.
A business loan shouldn’t affect your credit rating, particularly if your business is a limited company. The exception might be if you default on the loan and recovery action is taken against you under a personal guarantee.
A business loan shouldn’t affect you getting a mortgage, particularly if your business is a limited company. That said, a lender will want to know that your business can continue to support the level of drawings you need to meet your mortgage commitments and any other household and lifestyle expenses. To this extent, if a large loan is restricting your ability to take a living from the business, you could find a mortgage lender harder to find.
Have more questions?
Submit a request here or request a call back from one of our Regional Managers
We are delighted – Tamara has helped us with arranging different business funding from different lenders to match our needs as we have expanded