Cash flow is so important to UK businesses and many owners will often explore different financing options to stay on top of their finances and running costs.
While government grants, private investment, and personal savings can be a starting point for a new business, for businesses that are growing or facing a lack of cash, the use of a business loan can provide a starting point for a new business. large injection of cash to pay for things like growth, staff salaries, overheads, inventory and even tax bills.
A survey by SME Loans showed that 38% of small businesses in the UK have constant cash flow problems and that around 2.2 million people were not paid on time last year due to the company’s cash position.
One of the most common business loan options is to use a secured loan, which basically uses a collateral or valuable asset in the organization in order to borrow money from a bank or vendor. of loans. This type of collateral can be commercial or residential property, machinery, inventory or a vehicle – with the amount you can borrow against the value of that asset and there is a risk of repossession if you cannot track refunds.
The rates offered on secured loans can be very reasonable, with some lenders offering products as low as 3% APR. This will depend on the quality of the leveraged asset and other factors such as the age of the business, its revenue and its credit history. In some cases, a secured loan can often be cheaper than an unsecured loan.
The average loan term is around 1 to 5 years, with some lenders able to extend the loan offer for up to 25 or 30 years.
The amount you will be able to borrow will depend on the length of the loan, the turnover of the business, and the value of the asset. For example, you will usually be able to borrow more if you use a £ 1million property as collateral, compared to a vehicle worth £ 20,000. Some lenders are able to offer up to 100% of the value of the asset.
David Beard, Founder of Lending Expert, commented, “Secured loans can play a vital role for some businesses looking to free up money and use their office, land or property as collateral.
“Market rates are very competitive and you can be successful with a more specialized commercial loan provider than one of your big banks. “
“You’ll have to track repayments, because if you let them go into arrears, you might see your property or things repossess while the lender tries to recoup their costs. “
“In particular, you might want to think carefully about getting a loan against your own residential home. While some business founders and entrepreneurs have had success with this in the past, you want to avoid a position where you abandon your home and find yourself homeless.