There are two ways to grow a business: organically, whereby you invest most or all of your profits back into your venture, or via loans and/or investment. Both are equally valid business finance options; however, the latter method will result in faster growth.
In this article, we explain how to get a business loan so you can achieve your commercial ambitions.
Where can I get a business loan?
Business loans can be obtained from several sources, including family and friends, high street banks and independent credit organisations.
You need to be extremely careful if you borrow money from the latter, as the interest you might pay and terms can be high.
You should always check the conditions of a loan agreement and understand your obligations. This will help you to make an informed decision as to whether or not the loan is in your best interests.
What is required for a business loan?
Credit scores, annual revenue, business plan and collateral are the four cornerstones of applying for a business loan. However, there are many other supporting documents you'll need to qualify for a business loan.
They can include:
- Your driver's license
- Any commercial leases
- Business licenses
- Personal and business tax returns
- Business insurance plans
- Payroll records
- Incorporation documents
- Other affiliated corporate ownership
- Current added financial obligations
Can I get a business loan if I have bad credit?
If you or your business have a bad credit score, you may struggle to secure a loan from traditional lenders. These include high street banks or large building societies.
Several lenders will loan to people or businesses with a poor credit rating. However, you must carefully check the loan agreement to ensure you fully understand the security required and penalties if you default on the loan payments.
What is a personal guarantee for a business loan?
If you are the director of a company, your liability for the company’s debts is limited.
However, if your business is new and/or has a low turnover, you may be asked to sign a personal guarantee on a business loan. This means if the company is unable to repay, you will be personally liable for paying back the loan amount.
Are loan payments tax-deductible for a business?
Business loan repayments are not generally tax-deductible. However, most interest payments made on business loans are.
If your loan is used entirely for business purposes, you should be able to claim interest repayments as a tax deduction.
What is an unsecured business loan?
An unsecured loan is a loan where the lender does not require any security in exchange for lending your business money. Security is defined as assets which can be sold to recoup money if you default on your loan payments. The risks associated with an unsecured loan are higher for the lender, so generally the interest you pay is higher than the interest rate applied to a secured business loan.
Get legal assistance from LawBite
LawBite has experience helping startup and small business owners achieve their commercial ambitions and regulatory compliance. If you need support checking a loan agreement or require guidance on funding options, book a free 15 minute consultation or call us on 020 3808 8314.
