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Business Loans in the U.K.

Most businesses will need to borrow money at some point, whether it is to finance a start up, fund plans for growth or provide an extra source of cash during slow periods. There are a number of financing sources to consider when a business loan becomes necessary. Banks offer a number ways to help you with your business finance needs.

With a fixed term business loan, cash is borrowed and repaid over a fixed term with regular payments. These types of loans can be used for working capital and funding medium and long term growth plans.

Business overdrafts provide an additional source of cash for slower periods, for businesses that are more seasonal in nature, and for those that often have a large amount of money tied up in inventory. Business overdrafts make it possible to continue trading until the cash flow is restored.

Credit cards are another type of business loan that can be used for short term financing. Often there is an interest free period, up to 56 days, following a purchase, which is useful in managing and financing expenses.

Invoice discounting and factoring are types of invoice financing that provide working capital for businesses that have a good forecast but lack cash flow. With discounting and factoring, businesses are able to borrow up to 85% of unpaid invoices. Banks that offer factoring as a means of business finance typically require that a business forecast annual sales of at least 100,000. Additionally, the bank will run the sales ledger and credit management. Invoice discounting is similar to factoring, but is reserved for businesses that are forecasting annual sales of at least 1m; the company itself will be responsible for the sales ledger and credit management.

European Investment Bank (EIB) funded loans are made by many high street banks to enterprises with 250 or fewer employees. The benefit of an EIB loan is cheaper credit from the bank, which is passed on to the business in the form of a lower cost loan. EIB loans must be made for a minimum of two years and cannot be used for short term working capital.

Choosing the best business loan requires a comparison of the different types of financing available. Terms and conditions, lending criteria and credit assessment will vary from bank to bank, as will the loan packages that are offered to a business.

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