Loan Guide for Small Businesses

Application form for a loanFor most entrepreneurs, the first place in their minds for loan finance is their bank. Traditionally banks would lend on the back of solid ideas from people with the skills to make it a success.

Although banks are still a viable option, they reject more ideas today because of the difficult economic environment.

The acceptance rate will likely change over time as the government looks to release funds into the marketplace.

Having said that, the latest figures report 526,446 new businesses started trading in 2013, against 484,000 in 2012 and 440,000 in 2011. We recommend you approach your bank in the first instance as they are still lending to viable businesses.

Improve your Chances of Success

With so many options available it's all too easy to flood organisations with applications. Multiple credit checks raise red flags and could affect your credit history. Choose the options that are best suited to your requirements and put all your efforts there.

  • Research what options are available.
  • Check any terms that may apply such as repayment schedules and any equity options.
  • Following any application criteria correctly to avoid being rejected at the application stage.
  • If you do get rejected, ask the lender for reasons why they did not process your loan.

Types of Loans Available

Government Based Start-up Loans

The previous small business loan guarantee scheme no longer exists, but there are other new options.

  • OneLondon loan scheme is a government backed scheme providing loans from £1,000 up to £25,000 for younger entrepreneurs between the ages of 18 and 35. Interest rates are fixed at 6%, and this scheme offers help in applying together with mentoring once you start trading. You can apply online or call their helpline on 0845 603 2820 for further information.
  • Various regional start up loan schemes under the umbrella of the above scheme are also available. These include startuploansnortheast.co.uk.
  • The Funding Circle is a peer to peer lending group. So far, over £141 million has been lent to UK businesses from 52,000 people who invest in the group.

Other Types of Business Loans

If you need investment for an existing business, various schemes are available.

  • Energy Saving Trust offers interest-free loans for investment to reduce their carbon emissions. These loans have an interest rate of 0% or 5% for renewable energy investments.
  • Glasgow council have loans up to £50,000 available East London have their own scheme for loans up to £25,000. Check with your local council to see if they have a business loan fund.

Personal Loans

You could finance your start-up through a secured personal loan against your house. Personal loans for business ventures is always a high-risk strategy because you are personally liable for the repayments and not your business. Some people remortgage their homes and don't make a success of their business and end up bankrupt. If you're thinking of this route, then take specialist financial advice before proceeding.

Credit Card Debt

Accessing cash or cash flow from a credit card is an easy option.

To improve your cash flow, you should ensure you do not have outstanding balances on credit cards. You would not want to rely on this form of funding because the rates of interest are so very high so check with your accountant for other forms of finance.

Other forms of finance

All types of grants are available. These are not loans, but "gifts" that don't need repaying. Usually, the value is smaller and harder to receive.

Government departments, universities, and local councils tend to offer grants to businesses, so check locally to see what could be available for your new venture.

Other options are available, and we discuss these here if a traditional loan is not for you.