FAQ
Most frequent questions and answers
If you do not already own a business, it’s very unlikely that you’ll be able to take out a small business loan to acquire a company. If, however, you’re a business owner looking to buy another business entirely, some lenders may consider lending to you, if you can demonstrate that buying the business will not negatively impact your ability to repay the funds.
Some lenders will also allow a business owner to take an unsecured loan to help buy out a co-owner. Sometimes such lenders will want to see a Share Purchase Agreement (SPA) drawn up, to demonstrate you are serious about the move. If you’re in doubt, contact your preferred lender directly and ask them what situations they’re willing to cover.
Unfortunately, your credit score alone is usually insufficient to determine your eligibility for a business loan. Most lenders consider many factors, including creditworthiness and interest rates.
The main thing to know is if your business is healthy. This includes checking if it has defaulted on debt, has any outstanding County Court Judgments (CCJ), and has a solid customer base with steady revenue. For those looking to learn more on the topic, we’ve put together a business health check tool.
Business loan insurance is not a legal requirement, but some owners consider taking it out to help give them peace of mind. If the business owner dies or becomes seriously ill, any outstanding loans can have a significant impact on the business and its employees.
Some insurance providers offer a lump sum payment when a director dies or falls critically ill. The insurance lump sum will usually be the same amount of money as what’s outstanding on the loan. In return for this, you’ll be expected to pay regular premium payments to the insurance provider.
Whether you do or do not take out small business loan insurance is entirely down to you, although as there’s a regular cost, most owners will discuss the decision with the other business directors before taking out such insurance.
A greater part of small business loans are unsecured since, as a small business, you may not have enough collateral to offer the lender as security against non-payment. If you’d like to learn more about the difference between these two forms of loans, have a look at our unsecured business loans article.
There are some secured business loans provider though, so it’s important to compare the different options available.
Minimum repayments must be made either weekly or monthly, depending on the repayment schedule you agree to when requesting funds. With a monthly repayment schedule you will repay the first month 30 days after drawing down.
Securing a small business loan from the government can be a beneficial way to boost your business’s financial health. To get such a loan, you’ll need to follow several steps:
- Find the appropriate government loan: the UK government has different loan programs for businesses. For new businesses, there is the Start Up Loans scheme. For more established businesses, there is the Enterprise Finance Guarantee. Understand the eligibility criteria and terms for each before choosing.
- Government-backed lenders usually need a detailed business plan that explains your business model, financial projections, and how you’ll use the loan money.
- Fill out the application: once you’ve identified the right loan and prepared your business plan, you’ll need to fill out the application form. This typically includes details about your business, financial information, and your personal information.
- Wait for approval: after submitting your application, the lender will review it. This process can take several weeks, and if approved, you’ll receive the loan agreement to sign. After the loan agreement is signed and returned, the funds are typically deposited into your bank account.
Government-backed loans have lower interest rates and flexible terms, but they must be repaid. Defaulting can have serious consequences. It’s crucial to understand the terms and conditions fully before committing to such a loan.
The cost of a small business loan in the UK can vary significantly based on the type of loan, the loan amount, the term length, and the interest rate. For instance, our Flexi-Loan goes from 2% per month.
Securing a small business loan with bad credit can be challenging but not impossible. Here’s how you can improve your chances:
- Understand your credit score: before applying for a loan, understand your credit score and what factors led to it. This insight can help you plan on how to improve it
- Improve your business’s financials: showing that your business is profitable or improvement in its financial health can make you a more attractive loan candidate
- Consider alternative lenders: if traditional banks have turned you down, consider alternative lenders. they often have more flexible requirements and are more willing to work with businesses that have poor credit
- Provide collateral: if you have assets that can be used as collateral, this can increase your chances of securing a loan
- Seek a co-signer: if you can find someone with a strong credit score to co-sign the loan, lenders may be more willing to approve your application. However, this can be risky as the co-signer is equally responsible for repaying the loan.
Remember, obtaining a loan with bad credit can come with higher interest rates. It’s essential to weigh your options carefully to avoid further financial strain.
What documents are needed for a small business loan?
The process will very much vary from one lender to another. If you’re interested in taking a loan with us, have a read through how to get a business loan with PDQ Funding. We tried to make the process as transparent and hassle-free as possible.
How to get a small business loan without collateral?
That’s a good question and the answer is simple: look for an unsecured business loan.