Business bank loans offer entrepreneurs and small businesses access to commercial finance. Whilst they are not the only source of funding they are one of the most popular. This guide gives you the lowdown on how they work and how to apply for one.

Business bank loans offer entrepreneurs and small businesses access to commercial finance. Whilst they are not the only source of funding they are one of the most popular. This guide gives you the lowdown on how they work and how to apply for one.
 

What types of loans are available?

Business bank loans offer two main types of loan: flexible loans and fixed loans. Flexible loans are tailored products aligned with your business needs, offering a choice of repayment terms and interest rates. Fixed loans have pre-determined rates of interest, inflexible payment structures and tend to be more widespread. Interest rates typically vary between 7-12% but will vary based on fluctuations of the base rate. Repayment periods tend to be between one and 15 years depending on the capital borrowed.
 

Will I need to secure my loan?

This varies depending on the bank and the loan offered. Unsecured loans are often for smaller amounts and attract higher rates of interest to increase the bank’s profit. Larger loans will normally require security, typically assets or business property. In some cases the company directors can secure the loan on personal property; this personal guarantee can be contractually limited to change once certain conditions are met. If you are a sole trader or partner you are automatically liable for company debts; this must be considered when taking out a loan.

 

How long will it take for my loan to be processed?

Loans are not instantaneous and have substantial lead time, generally between three and six months depending on the institution and the loan amount. This is why it’s important to apply in plenty of time; do not wait until you are struggling financially before you apply. Not only is it possible you’ll fail before the loan is approved but bank managers may take your urgency as a sign of poor business acumen and reject your application as a result.

How do I apply for a loan?

Applying for a business bank loan is a considerable step. Preparing fully is essential so that your case is a strong as possible and you have the maximum chance of securing the finance you require. Please check out our full guide to how to apply for a bank loan for more information. Alternatively you may also want to read why banks reject loan applications to make sure you don’t make any common mistakes. Once you’ve prepared fully, it’s just a case of finding the most appropriate product for your needs; don’t skip this step as it’s important to match the loan to your requirements.

What alternatives are available?

Bank loans are typically for amounts between £1000 and £25,000. If you require more money it’s unlikely a bank will lend to you. Private equity is a good option for larger amounts, where you exchange a percentage share in your company for a lump sum. Please read our guide to private equity for more information. Government grants are another option; these are generally for much smaller amounts but do not require repayments. Finally, you may wish to approach friends and family for finance or use a business credit card.