Overview of business loans

Oct 12

Overview of business loans

Any business – large or small – is likely to need to borrow money to acquire new assets, manage temporary cashflow problems, secure additional working capital or to expand the enterprise.

The Entrepreneur Handbook – in its updated version of the 5th of July 2018 – describes the conventional process typically involved in requesting a business loan.

Business loans from your bank

Traditionally, the local high street bank has been the first port of call for small businesses looking to borrow funds.

Applications typically involve making an appointment to see the bank manager in charge, who is likely to ask for a detailed business plan, cashflow projections and recent statements of profit and loss, before your request is even considered.

The bank manager is authorised to grant relatively small loans only and even then you might need to put up security for the borrowing – by way of property owned by you or your business, for example. Requests for larger sums may need to go before the bank’s headquarters for a decision – a process which might take weeks or months.

Traditionally, banks have accepted loan applications from their own customers only.

Peer to peer lending (P2P)

Following the financial crisis of 2008, high street banks have become more and more wary of lending to small businesses – especially the granting of unsecured loans or applications that are not supported by a welter of documents on the financial status and long-term viability of a business.

In the place of banks, therefore, alternative sources of funding have been developed to provide business loans to companies and enterprises in need.

One such example is peer to peer lending – where deposits from individual investors are pooled to provide loans for borrowers – is designed to bring together investors (or “savers”) and borrowers.

Short-term unsecured business loans

Neither the banks nor some peer to peer lenders, however, are readily equipped to deliver many businesses’ needs for short-term, unsecured, fixed rate business loans as quickly and in as straight forward manner as businesses are likely to demand.

This has prompted a growth in the number of business loans providers drawing on their own funds – so-called balance sheet lenders – to offer rapid, short-term, unsecured fixed rate business loans predominantly through online applications.

Alternative sources of funding such as this have developed in recognition of the increasingly fast-moving business environment in which we live. To help meet these challenges, it is now possible with some loan providers to make an online enquiry about borrowing up to £100,000, over up to 12 months, and receive a decision in principle on your application almost immediately.

If a favourable decision in principle is given, the lender is able to give consideration to a formal application and, following a further favourable decision, typically transfers the requested funds electronically to your business bank account within little more than 48 hours.