Where you can get loans for your business

Date:23 January 2020

Category:

Your Bank

It makes sense to contact your bank first. Arrange an appointment with your bank manager and find out more about the options available. Make a note of the interest rates, fees and other terms and conditions, so that you can compare them with those offered by other lenders.

In some cases, your bank manager will ask for a business plan to support your loan application. To maximise the chances of your application being accepted, let us advise you on each of the elements that should be included in your business plan and check through the final document to ensure it is complete and in order.

Your bank may offer both secured and unsecured business loans. It’s usually easier to obtain a secured loan, backed by your business’s equipment, property or other assets. They can also offer invoice discounting or factoring, sometimes a mixture of this and overdraft or loan financing to help you achieve your needs.

Banks often have strict lending criteria, so it’s more difficult to gain approval for an unsecured loan, even if your borrowing proposal is sound. If your application is turned down, your next step could be to apply for a loan under the Enterprise Finance Guarantee Scheme (EFG) offered by the government-owned British Business Bank.

Enterprise Finance Guarantee (EFG) Scheme

The EFG scheme allows eligible SMEs with an annual turnover of below £41 million to access finance of between £1,000 and £1.2 million. Each loan is backed by a government guarantee, which pledges to repay 75% of the outstanding amount to the lender in the case of default by the borrower, although the borrower remains completely responsible for the debt.

All businesses participating in the EFG scheme pay an extra fee of 2% per year to the government. Repayment terms range from three months to ten years. To apply for a loan under the EFG scheme, contact one or more lenders who participate in the scheme.

Government Start-Up Loans

If your business has been trading for less than two years, applying for government start-up loan maybe your best option. You’ll pay a fixed interest rate of 6% per year on a loan of between £500 and £25,000. Repayment terms are between one and five years, and there is no extra charge for repaying the loan before the end of the agreed term.

Funding Circle

Providing funding from both the British Business Bank and thousands of small investors, Funding Circle offers SMEs unsecured loans of between £10,000 and £50,000, repayable over periods ranging from six months to five years. Interest rates start at just 1.9% per annum and there are no early repayment fees.

It’s easy to find out if your business would qualify for a Funding Circle loan by filling in a short online form. Doing so won’t affect your credit score.

Enterprise Loans East Midlands (ELEM)

East Midlands-based SMEs that have been trading for more than two years can apply for Enterprise Loans East Midlands (ELEM) from First Enterprise Business Agency.

To qualify, you’ll need to be able to fund 30% of the loan’s value and prove that you’ll be creating or safeguarding jobs.

Unsecured loans of between £3,000 to £150,000 are available. The interest rate is 11% over the base rate and additional fees are payable, including a 2% arrangement fee.

Sector-specific Sources of Funding

Your business may also be able to access sources of funding that are only available for businesses operating in certain sectors. Some examples are:

Big Issue Invest UK, which offers loans of between £20,000 and £3 million to charities, social enterprises, socially driven businesses or community organisations that have been operating for more than two years.
National Tooling Loan Fund, which provides loans from £50,000 to £2 million for specific projects carried out by toolmakers and component manufacturers.
Multiple Sources of Funding

In some cases, it may be appropriate to borrow from more than one source. Recently, a client contacted us because they were seeking substantial funding of over £500,000 for a management buy-out. Different sources of finance were available to them and they needed help navigating through the options to structure the funding, successfully.

We discussed their requirements and put together a finance package. We also helped arrange an independent valuation of the business, that both parties agreed with.

Based on our advice, the management buy-out team successfully applied for several streams of funding. These included a government-backed loan.

If you’re thinking of expanding your business, talk to us about your financing options first. We have good relationships with most of the banks in Mansfield, and we can help you supply other documents to support your application, such as profit-and-loss statements, balance sheets, business plans and management accounts.

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