What are the best business loans in 2021?
The finance market has been unpredictable throughout the past 18 months due to COVID-19 pandemic and national lockdown in the UK.
Many businesses have been successful in securing government backed funding given the range of emergency funding implemented by the UK Government.
The CBILS, CLBILS and BBLS schemes have been a lifeline for a wide range of companies. However, many businesses have still looked to traditional funding, either because they did not meet the eligibility criteria of CBILS and BBLS, or they preferred to use methods they were familiar with.
Securing funding in 2021 will be vastly different to the past year, as the government winds down its COVID support schemes and traditional lending begins to be more utilised again.
There are a wide range of different types of finance options available for different purposes and financial statuses. The best business loan for your company is dependent on what you need the loan for and your company status.
Securing funding can a difficult task for many, with a whole host of variables to take into consideration, which vary from business to business. It can be difficult to decide on which type of business loan is the best fit for your company.
When finding the best loan for your business you need to consider things such as;
- How much does the finance cost?
- Are there any fees?
- How much you can borrow?
- What sort of terms are available?
- Will the loan have a positive impact on long term financial health?
Which business loan?
With such a wide range of business loans available it can be difficult to determine which one is the best option for your requirements.
This is one of the reasons why many business owners choose to use a finance broker when looking for a business loan.
One of the main [advantages of using a finance broker] is that they know which loan product is the best fit for your company.
Whether you choose to use a broker or go it alone, it is a good idea to know what products are available to you.
The most popular types of business loans are;
VAT & Tax Loans
VAT and Tax loans are used to spread the cost of your VAT bills over 3 months and tax bills over 12 months. They are available with fixed monthly repayments and can be taken on a rolling basis (credit depending). [Find out more]
Unsecured Business Loans
Unsecured business finance can be used for any business purpose. Unsecured finance does not use security or collateral (in property) meaning quicker applications and approvals. They are usually available over 3 months to 5 year terms (subject to acceptance, personal guarantees & indemnities may be required). [Find out more]
Asset finance is used to purchase new assets or to refinance existing company assets. Asset finance is one of the best ways for a company to grow and purchase assets without negatively effecting general cashflow.[Find out more]
Bridging loans offer quick funding for the completion of a property purchase, to raise capital for cashflow or to help repay adverse debt and more.
You can fund up to 85% LTV borrowing from £50,000 upwards (subject to acceptance). [Find out more]
You can fund slow paying invoices without having to wait for your clients to pay with invoice factoring or invoice discounting. Release money tied up in outstanding invoices by financing up to 90% of the total invoice amount (subject to acceptance). [Find out more]
You can view the full range of business loans [here]
Secured or Unsecured
With less paperwork and assessments, unsecured loans can be quicker to apply for and process.
As the loan is not secured on assets or property, your application is assessed based on credit worthiness and financial health of the business and in some cases the personal strength of the owners of the business can play a factor.
Loans secured on property can take longer due to the nature of the transaction. There are many things to consider as well as financial strength, such as property valuations and legal work.
The amount you can borrow when using secured lending is limited by the amount of equity available, also known as LTV (loan to value), in what you are using for security.
LTV generally ranges from 50-80% less any outstanding loans secured on the assets, such as mortgages or other charges (loans secured on the property).
Some companies may be best suited to asset finance or secured finance if they have high amounts of equity available in the property or assets.
On the other hand, if a company only has access to low equity assets or property, then unsecured lending may be the best option for them.
Which lender is most likely to approve an application?
There is no definite answer to this question because all lenders have their own criteria and must follow responsible lending regulations.
There are a vast range of lenders to choose from, each with their own criteria which improves your chances of being accepted if you have been declined elsewhere.
Knowing which lender and loan product is best for you can be difficult. The most important step in applying for a loan is to do your research. You need find out which lenders specialise in your type of business, status, and finance requirements. It is also important to for the lender to understand the rationale behind the application.
Some helpful tips are;
- Do not go 'application mad' and apply with multiple lenders in a short space of time as this may have a negative impact on your credit score
- Read all loan documentation thoroughly to make sure you fully understand what you are committing to
- Consider your credit reoprt as many lenders look at this when deciding on applications (read more on loans for bad credit)
- Check loan criteria to make sure the loan product meets your requirements
- Loan amounts
- Annual Income
- Outstanding credit agreements
- Credit terms
- Secured or Unsecured
- Rationale behind the lend being requested