Business expansion is the dream of many entrepreneurs. When you have the confidence to grow your business, you are already on your way to more success. Expansion is an intimidating process for a small business owner. It will entail a large amount of rolling capital to be allocated to securing new resources and hiring more staff. If you don’t have the capital to do so, you will likely resort to other funding options such as applying for a business loan. Here’s a guide to how it works.
The definition of a business loan
In the UK, you can borrow at least £1,000 or upwards to £3M and have the chance to pay the money back within a period of one month to a maximum of 15 years depending on the amount you borrow. Genie Loan Brokers is an example of a company that helps businesses secure funding from different sources.
There are two types of business loans you can get: unsecured and secured. With an unsecured loan, the lender allows a business to borrow money without requiring collateral such as a business property. Secured loans, on the other hand, require the borrower to provide an asset as a form of security before the loan is approved.
The purpose of a business loan
There are no limitations to what you can use the funds for. It can be used to purchase new machinery, invest in technology, hire new staff, move to a new location, or open a new branch. The opportunities to expand your business are limitless when you have enough financial resources.
What are the different types of loans for a business?
Depending on the need of the business, there are different financing options available. Here are the most common:
- Bank loan
Most small businesses choose to apply for a bank loan because it is considered to be one of the safest funding sources. Nevertheless, banks have strict regulations when it comes to the application process. In addition to this, non-fulfilment of your payment obligations can further place your business in jeopardy.
- Invoice financing
For companies that are short on funds to complete orders from customers, invoice financing can finance the business through a lump sum that will be paid back once the customers have already paid for their orders.
- Asset-backed loans
If you want to borrow a bigger amount, there is one type of secured loan you can consider. You will need to have an asset as collateral such as property or stocks.
- Government grants
You may consider financing from the government since there are opportunities available for small businesses to get loans at low rates, and there are also grants. This is especially helpful for start-up companies because the government supports and invests in entrepreneurs that are starting their own enterprises.
There are other loan types you can consider, but do always keep in mind that choosing the right type of loan depends on your business need. Paying back your loan is also a priority because it can impact the status of your business in the long run.