Taking out a business loan in order to get some extra funding for your SME is typically a straightforward, speedy process. It is a great way of getting access to cash fast. However, with many business loans to choose from, it can get overwhelming when it comes to making a decision.
Here, we’ve put together the main questions you should be asking when getting a business loan
When you start looking for a business loan, we recommend that you ask yourself the following questions beforehand to ensure you will find the right deal for your company.
You should always know the business loan amount you are looking for before you start researching. It is important to take into consideration also as the higher the loan amount, the harder it is to find a lender. It is in times like these where you may need to use an FCA-authorised broker. So long as any brokers you consider are compliant and up to date with all FCA regulations (read more), you can discuss your needs with numerous brokers at any given time.
Knowing how long you want the loan to last for is also vital. If you are looking to pay the business loan back very quickly, then it unlikely a traditional lender will offer the terms you may be looking for.
You should also be thinking about how urgently you need the cash and plan as far in advance as possible. This is because whilst lenders can provide you with the loan (once approved) within a matter of hours or days, this does not always end up happening.
For example, additional security checks may need to be carried out before granting the loan.
Another important thing to consider is whether you can offer security against the loan. Business loan lenders will provide both unsecured and secured loans.
A secured loan means you provide a high-value asset such as a vehicle or property that is used as security for the loan. It means that should you default on repayments, the lender has the legal right to sell the asset to recuperate the money. If you are willing and able to offer security, then you will find it easier to get access to a business loan. However, if you are unable to pay the loan back there are much bigger consequences than if you were to take out an unsecured loan.
It is possible to get a business loan with a bad credit score, but you are less likely to find a loan with favourable interest rates. What’s more, not all lenders will be willing to offer you a business loan in the first place, so you will have fewer options to choose from.
However, it may be possible for you to get access to loans with better interest rates if you can offer security on the loan, through an asset. But, you should always make sure you fully understand the potential risks that are associated with secured loans. If you default on repayment,s you could lose the asset entirely.
If you want to get an unsecured loan for your business, you will find that lenders will scrutinise your business’s credit report (and your own) more closely. This is because you pose a higher level of risk to lend to without an asset as security should you not pay back the loan.
Consequently, you should make sure that you have checked your credit score (and the company’s) before making business loan applications. You want to give yourself the best chance of getting approved, and making some changes before applying for a business loan can help you do that.