Advice About Small Business Loans
There are many ways to get a small business off the ground, from applying for government funding to scouring for third party investors, but banks still remain the favourite for budding entrepreneurs.
Small Business Loans (SBLs) are an option given to new companies in the initial set-up process that have limited capital available and despite the negative headlines that have been hitting the press stands of late, banks want a lasting relationship with their customers and so do their best to make sure the business loan you get fits your needs.
Securing the funds to start your business from a bank can take a number of forms, including the option of an overdraft - which is obviously dependent on how much you need to borrow.
But, most circumstances require a bank loan and if your business model is good then the bank will be willing to lend.
Take an Interest
The first thing you need to keep in mind when it comes to taking out an SBL is the rate of interest being charged by the bank.
Loans usually come with a fixed rate of interest or a variable rate of interest and both have different implications for you as the borrower.
Firstly, the fixed interest means that you agree on a set amount that will be added to your monthly repayment to the bank, regardless of how the Bank of England base rate changes.
Variable rate of interest, on the other hand, is less attractive. This form of interest can fluctuate - both up and down - as and when the Bank of England changes the base rate so your monthly repayments aren't necessarily the same every month.
Single Payment Principle Loans
You don't come across single payment principle loans that often, particularly since the credit crunch took its toll, but if your bank offers you one, think long and hard before you agree.
This type of loan basically means that the bank lends you the money to start your business and you agree on a date in the future when you pay the whole loan back in full.
With a new business, this can be a very dangerous because you can't be sure that the venture will be a success.
Bet your House on it
There are different types of loan, and when discussing a business loan your bank may ask you to put your house up as a guarantee.
This is known as a secured loan and enables a lender to offer you a higher amount at a potentially lower interest rate. The problem with this is that if you can't keep up the repayments on the loan, you could lose your home.
Many people think that when it comes to borrowing from a bank, you have to go with the same one that houses your current account, savings account or credit cards - this isn't true.
The best thing to do is to shop around and find a loan that suits your business needs the best. All banks offer different loan packages and all have different rates of interest.
You must remember, however, not to agree to anything before you are sure which bank, and loan, is right for you.