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
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.