Businesses in the UK are plentiful, from small, friendly neighbourhood enterprises to big, multinational corporations run by boards. And despite the distinct challenges of owning a business, more and more individuals are taking to starting their own enterprise for the simple reason that it can give them a great return on their investment if the business is successful.
If you have a business of your own, however, you know that it can be difficult to come up with the funds you need – whether it’s for payments for suppliers or for investing in certain assets that will allow your business to grow, such as a new business location or new equipment. At times like these, you may be considering acquiring a loan. But before you do so, below are the ABCs of business loans and what you need to know.
What is a business loan?
Simply put, a loan is an amount of money which you borrow and then repay over an agreed period of time. You can usually acquire a loan for your business from different entities, such as private and alternative lenders (banks and other private financing institutions), other business enterprises, and even your family and friends.
What you need to know about a loan’s interest rate
But aside from paying back the exact amount of money you have borrowed, you usually have to pay interest on the loan as well. The amount of interest on the loan depends on several factors, such as how long the loan is needed, how much you have borrowed, and whether you have acquired a ‘secure’ loan, meaning you have provided collateral such as your home or other assets. Another factor that affects the rate of interest for a business loan is the base rate of the Bank of England.
Apart from this, there are two types of interest rates you can expect from a business loan: fixed or variable. A fixed interest rate will not change during the entire duration of the loan, whilst a variable interest rate will change depending on the base rate of the Bank of England or the bank’s borrowing cost.
When should you apply for a loan?
Of course, the main reason we all apply for a loan, especially if it is for our business, is to acquire more money. But in general, the money that is received from a loan is used for such expenses as payment for assets, such as company vehicles, computers, and other office equipment, or machinery. Additionally, loans are often used for businesses that are just starting out (as capital), and in special circumstances where the amount of money needed will not change. If you are positive about your business plan and you have ideas for expansion, then a Business Loan could be an ideal source of finance to invest in your business’ potential growth. You can receive the right capital for equipment or other necessities, which will help your business grow stable.
That said, investing in the right time is also vital. Strong cash flow ensures company goals are fulfilled at the right time even when there are challenges. You can take easy business loans that have services globally, similar to Coastal Kapital LLC (coastalkapital.com/). There are online consultants available who could help you figure out what kind of funds your business will need.
It is generally not a wise idea to take out a business loan for ongoing or operational, day-to-day expenses, as you may have a difficult time keeping up with the payments.
What to remember before applying for a loan
If you are considering a loan for your business, which might be an elderly care franchise, your first option may be to go to a bank. However, keep in mind that opting for a loan can be difficult if you are a start-up enterprise. Banks usually have strict and stringent rules and regulations on who gets approved for a loan, and they often require a business to have a long trading history before the business applies for a loan.
One alternative, however, is to apply for business loans from a specialist lending firm which often offers fixed fees with no APR and only requires a short trading history for a business to be approved.
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