What Are The Best Types Of Business Loans For Businesses?

Last post: Sep 2, 2019

Whether your business is in need of a loan to get off the ground or to progress to its next phase of growth, it is vital to be aware of the terms, conditions and implications of each available form of finance. So, what options do you have for a business loan for your own small to medium-sized enterprise (SME), and what factors will help to determine the most suitable solution?

Secured vs unsecured business loans 

As the name indicates, a secured business loan is secured against something, such as business assets or whatever you are using the loan to purchase. You may even be able to use your home as security for this. Secured loans bring the risk of you losing your home if your business falls behind with repayments, although they do also enable you to borrow larger sums of money than with unsecured loans. 

It's important to carefully assess your circumstances and needs before presuming that only the higher borrowing power of a secured loan could possibly be sufficient for your business. An unsecured loan – which, as its name suggests, doesn't require any kind of physical security – could still allow you to borrow as much as £500,000 at a time. If your business is more established, it may be possible to pay back an unsecured loan over a period of up to five years. 

Both secured and unsecured business loans can sometimes require a personal guarantee from the director, which will mean that in the event of the company being unable to keep up with its repayments, the guarantor will become liable for them.

What are the other possibilities for a loan for my SME? 

Many other innovative forms of business finance have become prominent in recent years that may be well worth considering. Have you thought of taking out a crowdfunded business loan, for example? This is a type of loan that really enables you to tap into the power of the 'crowd'; you'll be effectively borrowing from a larger number of smaller lenders who have clubbed together to raise funds for you, rather than the single lender or institution that is traditional with business loans. 

Thankfully, though, you won't have the administrative headache of having to deal with all of those individual lenders yourself if you opt for this form of business finance, as this will be the responsibility of the crowdfunding platform arranging the loan. All in all, a crowdfunded loan is certainly an interesting alternative source of unsecured business finance, with hundreds of thousands of pounds potentially able to be borrowed in one go; flexible repayment schedules may also be available. 

Other types of business loans can be sought that are often most suitable for specific circumstances and needs. If you are looking to purchase or lease equipment and/or vehicles for your business for instance, asset finance can allow you to pay for them over a period of up to five years. 

This solution enables you to protect your business cash-flow due to the payments being spread out over time, and as the finance is secured on the asset you are buying or hiring, you won't need to provide any additional collateral. 

If you are interested in buying not just equipment for your business but also premises, potential help can be at hand in the form of a commercial mortgage. Here at Choice Business Loans, we can give you access to a wide range of commercial mortgage providers to maximise their chances of landing the right deal. 

Use your imagination when seeking out business finance

There are all manner of aspects of your company's operations that could present opportunities for you to obtain a suitable business loan or finance.  For example, are you aware of invoice financing that gives you the option of being paid for your invoices as soon as you send them, without having to wait until the end of the payment term? Again, this may be an attractive route to pursue if keeping your business's cash-flow flowing is one of your uppermost priorities. 

Merchant cash advances, meanwhile, are another type of unsecured business finance that have gained prominence relatively recently, originating from America and only becoming available in the UK about a decade or so ago. They're all about raising funds on the basis of your business's credit card turnover, although you're typically limited to whatever your firm's proven average monthly turnover is.

When you opt for a merchant cash advance, you will repay the advance amount plus a fee, in the form of a small percentage of usually around 10-15% of all of your business's card receipts until the full amount has been paid off. It's a potentially very convenient form of business finance, as the amount will be deducted automatically at the terminal with each transaction, and there are no deadlines for repaying the advance; you won't even need to change to a different card processor.

Would you like to discuss any of these, or the various other types of loan that could suit your business's present circumstances and objectives? If so, it's well worth remembering that here at Choice Business Loans, we are always available to talk; don't hesitate to get in touch with our customer service team for further information, advice and guidance.