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Your Essential Guide to Business Loans in the UK: All You Need to Know

business loan

Every business needs all the support it can get – especially when it comes to financial aspects. Without working capital, how else can you help your business grow? Cash flow is extremely important for any business, be it a start-up enterprise or an established corporation. With the right cash flow available at any time, you can invest in more equipment and supplies, you can take care of any emergencies, and you can promote your business to your target market without worrying too much about the expense.

If you are increasingly concerned about your business cash flow and are thinking of ways to augment it, why not opt for a business loan? Granted, you may be wary about acquiring a business loan because of all the nightmare scenarios you have heard about. But if you do your research, find out all that you can, and know exactly what you are getting into, a business loan can be a windfall for your enterprise.

What is a business loan?

We all have a certain idea of what loans are, but here’s what you need to know about a business loan: a business loan is basically credit (often in cash form) which you borrow and then pay back over a period of time. You can get loans from banks and other private financing institutions, as well as friends and family. But with bank and private lending firm loans, you will usually have to pay a set or variable interest fee as well.

The amount of the interest depends on a number of factors, namely how long the loan is needed, the amount of the loan, and whether you have opted for a secured loan (meaning you have agreed to transfer your ownership of certain assets to the loan provider if the loan is not repaid). The rate of interest, as mentioned, can either be fixed (set) or variable – with a fixed rate, the interest will remain the same throughout the entire length of the loan, while with a variable rate, the interest will change and adapt to the base rate of the Bank of England or the borrowing cost of the bank.

The benefits of a loan

Aside from helping you with start-up expenses and the purchasing of equipment for your business, loans can also be used for other activities which can help your business grow and move forward. Another benefit of business loans is the fact that, compared to an overdraft, the loan does not have to be repaid on demand. Another benefit of a business loan is that you do not have to give the loan provider any percentage of the profits you accrue or a share in your enterprise.

What to watch out for when acquiring a business loan

Despite its many benefits, there are some drawbacks to acquiring a business loan as well. Some business loans offered by finance providers are not very flexible, which means that you may end up paying an extra fee if you decide to repay the loan early. So when doing your research on which loan provider is best for your needs, choose one that does not charge an early repayment fee. Remember also that if you have a secured loan using your assets or property as collateral, you can easily lose these if you cannot keep up with your loan payments.

When getting a loan for your business, think carefully about planning your finances around the repayments as well – if you do not plan your business finances accordingly, the purpose of acquiring a loan can very well be defeated.


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