If you’ve got a great idea for a new product or company, a business loan is an excellent option to get it off the ground.
Ideally, you use your savings or a personal loan from a high street bank, but that’s not always an option. You may want to spread the cost over a period of time if you’re expecting future business growth.
A business loan can work in many different ways to help an established, growing, or new business get going.
A standard business loan will often be based on a company’s performance, sales, or perhaps its affordability. This provides you will with the opportunity to reach potential growth or income targets.
A business loan is usually flexible in pricing and could, depending on the lender, cover more than £10,000. So, you could secure the costs for any growth, products or new business.
If you want to apply for a business loan, there are four options available.
Personal loans are the most common option. However, for many who have a poor credit rating, they are unlikely to secure approval. Also, your score could drop if not eligible for the loan due to a hard search by the bank.
Payday loans offer quick, short-term finance, making them a popular option for many borrowers. However, they also tend to come with very high APR. This could result in potentially large repayments each month.
Secured loans usually require an asset, such as property, to use as collateral. However, failure to make monthly payments may result in losing your asset. So it is not an option to be taken lightly.
Guarantor loans are a popular choice for borrowers with a poor credit rating. They require a guarantor to make the monthly loan payments if you don’t. It is a loan system based on your relationships with family or friends.
A guarantor business loan could provide you with the funding for new products, space or ventures, but repaid over time.
The standard personal loan could prevent you from accessing the finance you need if you have poor credit history. A guarantor loan, however, does not restrict you from securing a loan due to a bad credit rating.
This is a flexible option with quick approval. This is also a beneficial form of a loan if you want to set up a company but have limited credit history.
There are a few ways a business loan could help you improve your credit rating and financial standing.
By budgeting accurately for monthly outgoings, you should stay on track with your repayments – paying on time and in full. This will lead to an improvement in your credit score.
If you are in a position to repay the credit earlier, there will be less interest on the loan. By doing this, you will be in a healthier financial position. And by paying off your debt quicker, this could improve your rating.
If you are contemplating becoming a guarantor for a business loan, there are matters you need to consider.
A business guarantor loan can cover different aspects of a company; it may depend on you having knowledge of the borrower’s company or planned project. If this is something you do not or cannot do, it may put you in a difficult position.
It is also important to consider whether covering payments may be detrimental to your relationship with the borrower.