Which Business Financing Options Matter to Your Commercial Success?

Almost every individual and business must have felt the need for financing to fund some purchase, and he or she must have contemplated taking a loan. There are many instances in life where one does not have sufficient funds available and reach out to lenders for financing.

Getting a loan is pretty easy in the UK if you know the right loan products and lenders offering these loans. This blog will assist you in answering all your concerns regarding that first part about types of loans in the UK.

Many times the credit score of an individual or credit rating of a company is sub-standard and commercial banks reject their loan application. They can approach direct lenders available online for a debt consolidationloan for bad credit with no guarantor borrowers.

These lenders do not ask for any asset to be pledged as collateral and not also for a guarantor. They credit the borrowers with the loan amount on the same day the loan is applied for.

Let’s look at some of the famous loan products for businesses available in the UK in detail. Here it goes:

  • Business Loans

Businesses are always in need of money, be it for their working capital requirements or expansion plans. Their needs are diverse and complex; also, the loan amount is much higher than what a retail borrower will take.

Thus, commercial banks do due diligence before giving such loans as the risk involved is higher. This is the reason why banks reject many commercial borrowers’ loan applications. To their respite, there are alternative lenders and direct lenders in the UK offering loans to such borrowers who have been rejected by big banks.

Start-ups, small businesses, medium-sized businesses and even large conglomerates can apply for business loans with these lenders. These loans can be secured or unsecured loans, it can be short-term or long-term loans, it can be revolving credit facility or overdraft facilities etc.

  • Asset Financing

There are situations, especially in manufacturing companies, where they need to buy business equipment. It could be a piece of heavy machinery from a foreign country, or it could be vehicles for their sales team, it could be commercial generators for power backup etc.

These loans are pre-dominantly for diversification or business’s expansion purpose. These latest technology and machinery is what becomes a critical differentiating factor for a company in their industry.

Generally, these loans are backed by existing assets of the company used as collateral, but this varies from lender to lender. This product for financing is also eligible for leasing purposes, like in case of capital intensive industries.

  • Property Financing

These loans are for you, whether you are a property buyer, property investor, property owner, or property developer. The further sub-division of loans in the property financing category are commercial mortgages, auction finance, bridge financing, development finance, renovation finance etc.

There are loan products for everyone and any work from refurbishment to development. These are usually short-term loans with tenor ranging from 3 months to 24 months and interest rates based on the credit risk.

It is somewhat a complex loan product, thus be sure beforehand as to which sub-category in this product is ideal for you.

  • Working Capital Financing

Working capital in a business is the money required for running day-to-day operations of any business.

There are many cyclical businesses or stressed companies which have irregular cash flows; thus, they end up being short of funds for daily operations. This type of financing could be used for expansionary plans of a company or their diversification goals or for their entry into a new market or to buy raw material for production.

The sub-products in working capital financing are working capital loans, revolving credit facilities, overdraft facilities, merchant cash advances, tax bill funding, invoice financing etc.

Suppose a company already has a pile of debt which is bulging as it is unable to take further loans because of several existing loans. In that case, they should approach a direct lender to get a debt consolidation loan to end all the existing debt.

  • Business Cards

These corporate credit cards are a quick way to get fast money for short-term spending purposes. This type of credit helps in better management of cash flows and regular tracking of expenses. These cards are considered as unsecured loans, and they come with a limit above which any cardholder cannot spend.

Since this not backed by collateral, the criteria and eligibility to get one is fairly stringent with a limit based on the company’s financial health and their credibility. Companies can apply for a credit card with any bank in the UK, but to quickly get one such card, their credit rating needs to be satisfactory, else their application will be rejected upfront.

However, few lenders will give you this card facility despite sub-standard credit rating, but the limit on that card will be comparatively lesser. These card loans are suitable for short-term expenditure by the company be it for any purpose, either spreading their costs or facilitating staff-related expenditure.

  • Commercial Mortgages

The land is one of the critical fixed assets for any business, be it for warehousing or production facility.

For expansion, companies are always on the lookout for commercial property, and their prices are sky-high, for which the company resort to borrowing. This is where a commercial mortgage comes into the picture, which is a type of business financing option to buy any commercial property.

Many high-street commercial banks and property lenders in the UK are offering these loans to businesses with tenor ranging from 3 years to 25 years, depending on the property’s value. Lenders usually look for your company’s ability to repay this loan in the pre-defined tenor, and that is what they majorly consider while giving an approval or rejection decision.

Also, loan to value (LTV) ratio clause is introduced by banks in many such cases which implies the bank will pay a partial amount to buy a commercial property be paid by the business and the remaining.

For instance: If the LTV ratio is 70%, then for a £100 property, £70 will be paid by the bank, and the borrowing company shall pay the remaining £30.

Description: This blog was written for entrepreneurs and company managers to apprise them about the different financing options available in the UK for their business based on their needs.

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