Term loans represent a key funding option for businesses of all sizes, though securing finance of this nature would depend on your company’s current financial situation. From a lender’s perspective, it wouldn’t make sense for them to provide finance to a firm with shaky cash flow projections. But if your company finances are reasonably solid, term loans could be the best solution to provide your business with a cash injection.
The basic premise of a loan is universally understood; a certain amount of money is borrowed and then repaid at regular intervals over an agreed period – with interest added to the amount borrowed. For many companies, this is a very useful finance solution and could allow a business to expand, but it isn’t necessarily the right option for all. We can help you ascertain what sort of finance facility is best for your company and appropriate to its particular circumstances – whether that be a term loan or other source of funding.
Approval of a loan can take a number of days, or even months. It would depend on the amount of credit required, and the circumstances surrounding the business. For example, a start-up with very little credit history or cash-flow records/projects might struggle to secure a large sum of money as it would represent a risk to a lender.
There are certain lenders that specialise in providing loans to new businesses, however. Real Business Rescue can pinpoint the right lender for your company in this particular situation.
A typical loan period can be anything between one and seven years, and the lender will assess a company’s application based on your ability to meet the repayment schedule. A prerequisite, therefore, is reliable cash-flow sufficient to service the debt without placing stress on the company finances.
The business credit rating will be analysed along with your trading history so the lender can weigh up how risky the loan is to them. However, it is likely that the loan will only be offered if some sort of security is introduced into the equation; i.e. a personal guarantor or the loan secured against assets.
In the current climate with interest rates low, term loans are a particularly attractive option for commercial purposes – providing substantial injections of cash without the company directors having to sacrifice equity or ownership to new investors. Companies can also choose a fixed interest rate to take advantage of the current low rates, rather than opting for a variable rate that could rise in the near future.
Of course, the disadvantage to any loan is that the company is tying itself down into a contractual agreement that must be adhered to or the consequences could be drastic, i.e. fines, diminished credit rating, potential bankruptcy or company liquidation.
Prior to the loan being agreed, the lender will need to see business bank statements and accounts, generally going back between three and 12 months depending on whether or not it is a short-term loan with less risk, or long-term borrowing. The amount of time taken to agree a loan will depend on your trading history, future outlook, and credit history.
Sole traders in particular can benefit from short term business loans. Most lenders of short term finance understand the specific challenges faced by sole traders. Typical terms might be borrowing £5,000 for the purchase of seasonal stock for example, or perhaps to meet a tax liability.
Repayment terms are usually flexible, and offer the opportunity to meet market demand without endangering current levels of working capital. The injection of a cash lump sum provided by a short term business loan can also be used as the base for business expansion.
Long term business loans for sole traders may form part of wider plans for growth. They would provide the funding needed to take on new orders with confidence, knowing that the cash is there to fulfil them, and addressing the risk of overtrading.
Securing funding of any type with bad credit can be challenging. A general reluctance to take on excessive risk puts many lenders out of reach, but there are a number of specialist finance companies that offer short term and long term business loans for bad credit.
Your business may have experienced a period of poor cash flow in the past, however temporary, but the result is an adverse effect on your credit rating. Small business loan terms and conditions in this situation will not be as attractive as those accompanying a ‘standard’ business loan.
This type of funding could be just what is needed to put growth plans in place, however, or to launch a new, more profitable era for the company even if the terms and rates are not quite ideal.
Real Business Rescue has built strong relationships with over fifty lenders across the UK including major high street banks, numerous specialist and regional lenders, and innovative new solutions such as crowd-funding.
To find out more about term loans and whether it’s the right option for your company, contact us today and our specialist finance team can talk you through the process and permutations in more detail. There are usually a number of potential funding options available and finding the best option will depend on your company circumstances. With 55 offices across the UK, you’re never far away from expert and confidential advice.
Author: Keith Tully (Partner)
4th December 2018
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