Business Loans: What You Need to Know Before You Apply
Written by James Dutton
Key Takeaways
- A business loan provides a lump sum of funding that's repaid, with interest, over an agreed period, and can support anything from day-to-day cash flow to larger growth plans.
- Cost and eligibility are shaped by the strength of the business's finances, its credit history, and whether the loan is backed by an asset.
- It's a versatile form of finance, commonly used for everything from purchasing equipment and covering cash flow to funding acquisitions, staff hires, or business expansion.
What is a business loan?
A business loan is a common form of finance used by UK businesses, and it works on a fairly simple principle: a lender advances a sum of money, and the business repays it, with interest, over a period both sides agree to upfront. What makes business loans so widely used is their versatility, they can be shaped around almost any funding need, whether that's a short-term cash flow gap or a longer-term investment in the business's growth.
What can a business loan be used for?
Because loans aren't tied to a specific purpose in the way some other finance products are, they tend to get used for a broad range of things, including:
- Purchasing equipment or machinery
- Bringing on new staff
- Relocating to new premises
- Funding a business acquisition
- Consolidating existing debt
- Marketing and advertising spend
- Managing cash flow
- Buying stock or inventory
- Expanding into new markets
- Covering every day running costs
Whether a loan is secured against a business asset or arranged without one shape how much can typically be borrowed and at what cost, we've covered that distinction in more depth in Secured vs Unsecured Business Loans: What is the Difference?
What are the benefits of taking out a business loan?
Acting on opportunities sooner: Rather than waiting to build up funds within the business, a loan allows a business to move on an opportunity, such as a gap in the market, while it's still available.
Keeping full ownership: Unlike equity investment, taking out a loan doesn't involve giving up any shares in the business, so control stays entirely with the existing owners.
Flexibility of use: While lenders will typically want to understand what the funds are for, most loans give the business room to adjust how the money is used once it's in the account, within the terms of the agreement.
What are the drawbacks worth considering?
Fees for missed or late payments: Falling behind on repayments can trigger additional charges on top of what's already owed.
Lending criteria: Approval depends on a mix of factors including trading history, credit history and affordability, which can make it harder for newer or less established businesses to access this type of funding.
Impact on credit standing: A loan application typically involves a credit check, and missed repayments can affect both the business's credit report and the personal credit rating of any director involved, which can make future borrowing harder.
Why use a broker when applying for a business loan?
With so many lenders operating in the market, each with their own pricing, criteria and appetite, finding the right fit can take considerable time and effort to research independently. A broker with access to a wide panel can help match a business to lenders more likely to say yes, and on terms that suit its circumstances.
MAF Finance Group can compare offerings from a wide range of banks and alternative funders to help find the right loan for your business.
To learn more or get a quote, fill out the form below. If you'd like to speak to someone directly, call us on 0115 858 1010 and a member of our team will be happy to help.
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