Looking for business loan best rates, you may come across some that seem too good to be true. And the likelihood is, they are. The devil is in the detail. Take a closer look, and you might find that the cheapest price doesn’t actually give you the best value.
Before you approach lenders, it’s best to know exactly how to tell a worthwhile rate from a bad one in disguise. Here, we explore the key elements to consider when searching for a loan.
It’s an unwritten rule that lenders won’t allow you to borrow any more than 25% of your annual turnover. In fact, the maximum is more likely to be 10-20%.
Their willingness to lend even this amount will depend on whether you meet specific criteria. These aren’t set in stone, but they will probably expect your business to be UK-based, profitable, and have been trading for at least 24 months. On top of this, the lender may require that you are free from any outstanding county court judgments or late payments.
Some lenders may loan money even if you don’t meet these standards or are asking for more than 25% of your annual turnover – but there’s a good chance that their business loan best rates will be higher than you’d find elsewhere.
There are three basic categories of loan length: short, medium and long. Short term business loans last between 3 to 24 months, and any loan periods longer than this are classed as medium or long term.
You may require a loan that’s not for a fixed amount of time. High street banks generally don’t offer these, but rolling agreements can be found from revolving credit facilities.
This type of finance has strict terms around when you’ll need to make the repayments, as well as how much money you can withdraw. After a certain amount has been paid off, you’ll have access to more funds.
Revolving credit facilities basically allow the money available to be automatically renewed. This level of convenience and flexibility means that the business loan best rates offered through this method of finance will likely be more than that of fixed-term loans.
The business loan you take out will either be secured or unsecured. A secured loan means you’ll need to provide some form of security – typically valuable assets or items. What is considered as allowable security will depend on the specific lender, but commercial property, vehicles or stock are commonly accepted.
Unsecured loans require a personal guarantee. You’ll need to prove your affordability – showing positive personal net worth and owning an UK home are good demonstrations. This means you won’t need to offer any of your physical assets, which may be preferable if they are less than the value of the loan you seek, or if you’ve not been trading long.
These types of loans are generally more short term, as well as for smaller amounts of money and with no need for valuations, you may receive the money faster. As unsecured loans don’t provide lenders the promise that their money will be returned to them, the business loan best rates available will probably be higher than secured loans.
The interest rates offered to you will completely depend upon how risky the lender sees your business – the higher the perceived risk, the higher the interest rates are likely to be.
The lender will assess you based on your circumstances, including financial performance, length of trading time, and credit score. The latter will be a strong contributor to the amount of interest you’ll pay.
If you do have a poor credit rating, your interest rate may initially be high. If your score improves, however, you can expect to find that the business loan best rates available become better value for money.
How risk is perceived depends on the judging method of the lender – some have risk bands, whilst others work out interest rates for each individual case.
Speed and type
If you need the money quick, you’ll need to find a lender who’s willing to part with the money swiftly. You can speed up the process by ensuring you’re adequately prepared with any documents they need to process your application.
Another important factor is the type of loan you want to apply for. Small businesses have often found trouble borrowing from high street banks, but there are many different types of alternative finance available.
These include invoice finance, merchant cash advances and asset finance. Invoice finance is where the lender essentially pays your unpaid invoices until the customer pays themselves. Merchant cash advances give you funds based off future card sales – this will usually be limited to a month’s income.
There are two forms of asset finance – the first one is used for secured loans, and the second uses products, such as equipment leasing and hire purchases, to cover the funding of new and used assets like plant machinery.
Find a lender with Ping Finance
The process of finding and applying to suitable lenders you can trust can be lengthy. Thankfully, at Ping Finance we take the burden off your hands.
We’ll take the time to get to know you and your business’ circumstances, matching you to lenders that can offer some of the best business loan rates available. We’ll present you with a wide selection of suitable finance providers who you can apply to simultaneously, reducing the time it takes to secure a loan that’s right for you.
We have helped businesses in a diverse range of industries, including agriculture and healthcare. There’s also no charge to our services, and you’ll never feel obliged to accept the finance options we offer. Our quick, straightforward process is designed so you can access the finance you need as soon as possible.
With the money in the bank, your business will be able to flourish. Register for free with Ping Finance today.