Business loans

What are business loans

As the name suggests, a business loan is a sum of money lent to a business owner to help fund its development. It is commercial finance, as opposed to personal finance.

Naturally, different types of loan may be needed for different purposes. Start-up finance might be required to set up a company in the first place: an entrepreneur may have a great idea but lack the funding to start trading.

If you are planning on starting a business with a partner, it is vital you choose a suitable co-founder. When it comes to business loans, having a responsible partner that will assist with the debt is crucial in making sure the company stays afloat and continues to develop.

Once the business is up and running, asset finance can provide the money to buy essential assets and help it perform more efficiently. This an investment that can be used to buy anything from machinery and construction plant to commercial vehicles: in short, any kind of asset, i.e., something that adds value to the business.

Business Development Loans

Expansion funding would be a loan designed to help a company develop: by merging with or acquiring a rival, perhaps, or by allowing it to buy larger premises or add to its outlet network.

Financing Cash Flow problems

Cash flow is a problem for many businesses. One way round this is through what is called factoring or invoice factoring. Companies offering this service will in effect buy your invoices from you. The advantages are that you get cash more quickly, and don’t have to chase your customers for payment (nor do you have to worry about bad debt). The disadvantage is that the factoring company makes its profit by paying you less than the face value of the invoice. However, this may not be a huge amount: a 5 per cent reduction to you would be typical, and you may feel that this is worth it to smooth cash flow and reduce waiting time for payment.

Banks or Venture Capital

A range of companies offer business finance. Obviously, banks and building societies do so. However, there are other routes. Start-ups for instance are sometimes funded by venture capital companies. These companies will inject often substantial funds into a worthwhile business idea, and usually add expertise at board level to help ensure that it succeeds. The downside of this is that they will demand a stake in the company and will therefore have a degree of control over what it does.

Invoice Factoring

Various banks offer factoring services, but these are also provided by standalone factoring companies. Websites such as www.simplybusiness.co.uk will help you track down companies offering such services.

Private Investors / Business Angels

Investors will also put money into companies: and there is a growing number of websites that put businesses in touch with such individuals. The advantage going direct in this way is that individual investors may offer better terms than banks: and some may even offer loans when ordinary high street finance routes are not available.

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