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Business Loans Guide

SME Loans

A guide to helping you understand and compare SME business loans online

How to find the best SME loans

Across the UK are a vast number of expanding small businesses, which could kick-start their growth through access to competitive and flexible SME finance. Here at Business Comparison, we specialise in helping businesses find the ideal loans for their specific requirements, by working with a panel of more than 30 lenders.

If your business is looking to raise funds with an SME loan, this useful guide will take you through the steps of finding and applying for the ideal loan.

Which SME loans are available?

At every stage of an SME life cycle there is pressure to maintain strong levels of working capital. Whether you need to invest in new services, develop new products, hire staff or expand into larger premises, accessing an SME loan could provide the funds you require. Finding the ideal SME loan is often the most important step in accessing the potential opportunities your business needs to grow.

We know how important it is for businesses at every stage to be able to access finance when they need it, which is why our lenders include traditional high street banks, alternative lenders, and online banks. Through these lenders we can offer your business an SME bank loan from £1,000 to £20,000,000, with short repayment terms of less than a year through to longer periods of several years.

Unsecured SME loans

The most traditional form of SME lending is an unsecured SME bank business loan, although for larger amounts with longer repayment periods, most companies will opt for secured loans. These types of loans are commonly available from banks and other traditional lenders and will usually require a strong financial history. The SME business loan will generally provide low fixed interest rates, with repayments set at equal amounts which are repaid each month for a set period of time.

Credit cards and overdrafts

Common alternatives to traditional SME loans are credit cards and overdrafts, which provide access to a fixed amount, with repayments based on the amount of credit you spend. You will be charged an annual fee, with repayments for the credit taken each month. There are some credit cards and overdrafts available which offer interest free periods, which could provide you with a low-cost form of borrowing.

A similar option to a credit card and overdraft is a flexible line of credit, which provides your business with a credit limit which can be drawn upon when required. The loan can be flexibly repaid in the same way as an overdraft and credit card, making it ideal for businesses who are just starting out, or those who have been trading for a longer period. The costs of a line of credit can vary significantly depending on your financial situation, with some businesses required to provide security.

Invoice finance

Another alternative to a traditional SME loan is invoice finance, which could unlock the funds you are already owed. This form of lending is ideal for fast growing businesses which are looking to unlock the capital in their increasing turnover. This is a popular option for businesses who may not have a strong financial record but have a high level of income owed. The lender essentially purchases the invoice from you, releases a percentage of the funds and is repaid when the invoice is paid. There are two types of invoice financing, factoring and discounting, with the main difference being who is responsible for collecting the invoice amount.

Merchant cash advance

If your business processes a large amount of PDQ payments, you may be eligible for a merchant cash advance. The lender will provide you with an SME loan in the form of an advance on PDQ payments, which you are likely to receive. The repayments will be taken gradually as you receive payments from your customers, making this form of loan an ideal way to manage cash flow. The amount available will usually depend on the level of monthly PDQ sales which your business receives. The interest rates tend to be higher than traditional SME loans, so a merchant cash advance is not an ideal long-term financing solution.

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How to compare the SME loan options

We have developed our finance finder tool to help your business navigate through the available loans, so that you can find the ideal SME loan for your business. The tool is designed to help you compare the available finance so that you can find the ideal SME loan from a bank or alternative lender. By asking a series of questions relating to the amount you are looking to borrow, how long you need to repay and also what the loan will be used for we can help you find competitive SME funding.

The criteria between lenders varies significantly but in general they will be looking to loan to businesses with a strong financial record and an excellent credit rating. The SME loan interest rate and the repayment terms will be dependent on your business finances and whether the loan will be secured against assets. Alternative lenders are usually more flexible than traditional lenders, but our finance finder will remove the hassle by finding the ideal lender for your unique situation.

The finance finder will provide you with a list of potential loans, with the best match for your requirements at the top of the list. You will then be able to follow the instructions on our website to complete your application, which is likely to involve supplying additional financial information. Every lender will analyse different aspects of your finances, but in general most will want to see bank statements, profit and loss statements, details of monthly turnover and even a business plan.

To improve the SME loan processing speed, you should prepare these documents in advance, as they could be the thing which makes the difference in your loan being approved. The business plan is one of the most important aspects so you should spend time preparing the details, as it will show exactly how the SME loan will be used to grow your business.

Is my business eligible for an SME loan?

The lender will assess your application to decide the level of risk which your business represents. If you have showed a strong financial position, then your business will be able to access SME loans without collateral, low interest rates and longer more flexible repayment periods. However, this isn’t always the case and many business have a poor credit rating.

Our flexible lenders may still be able to offer you an SME loan, however the interest rate may be higher than expected and you may need to pay the funds back over a shorter period. If this doesn’t suit your businesses plans, it may be possible to negotiate better terms, by offering security on the loan in the form of business assets or a personal guarantee.

The security you provide should be equal to the loan amount and will be at risk if you fall behind with any repayments. The lender will legally be able to sell your assets, if the loan falls into arrears. This could mean losing your businesses assets and even your personal assets, such as your home and vehicle.

If you would like to discuss an SME loan in more detail, our team will be able to take you through the process of finding a competitive loan which suits your exact requirements. To find out more, please contact our team who will be happy to guide you towards an appropriate form of finance for your business.

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