Business Loans - What's Involved?

Got a business or looking to start one? Need finance to help you on your way? This article aims to provide some useful pointers on how the market for business loans and commercial finance in general, works.

There are both similarities and differences between business loans and consumer finance. They can often be down to the way the business itself is structured. Let's take a look:

• Public and Private Limited Companies - under Uk law, the business is regarded as being a separate legal entity. They have shareholders, whose liability in the event of the organisation being wound up, is limited to the amount of share capital they have invested in the organisation. Therefore, with regards to a loan, the lender will look to secure it on the assets of the company rather than on any person or persons who run the company.

• Sole Traders and Partnerships - the business is entirely dependent on the individuals who own and run the organisation. They effectively are the organisation so when it comes to acquiring a loan, the lender may well request personal guarantees as the liabilities of the commercial operation are not limited to the assets of the organisation. If there was a default, the lender will be able to claim personal assets from the individual to cover their losses in any default.

So, when looking to raise finance it is as well to at first understand the personal risks involved before making your decision to proceed. In any event, if there are not sufficient assets owned by the company, which may include commercial property, plant and equipment or even inventory, you may need to provide a guarantor, which in many instances, may be one or more of the directors of the company.

So, What Could We Use Our Business Loan For?

• Starting a new business

• Purchasing new commercial premises

• New plant or equipment

• Purchasing new vehicles, or even

• To provide much needed working capital

It's quite possible that you have other reasons for borrowing money. Your chosen broker or lender may well be in a position to help.

Typical business loans range from £50,000 to £1,000,000 or more and are often applied for in much the same way, these days. Simply go online and choose a suitable business loans broker or lender and complete the simple enquiry form. The provider will be back to you within a few minutes and you may find that, subject to the satisfactory responses to a few quick questions about your business and purpose for the loan, you may have a positive decision in principle straight away.

The lender may evaluate the LTV (loan to value) figure to ensure that they are not lending more than what they would regard as being a satisfactory risk to your business. This figure rarely exceeds 85% in the UK however each lender may analyse the risk they face in lending your business the money, in slightly different ways. They are likely to look at and late payments or defaults that you have accrued in recent times however.

Of course, you will need to complete a credit agreement and the lender will probably require a few supplementary pieces of documentation to support your application - latest accounts, valuations to property and equipment etc, but the process may be potentially be completed within a couple of weeks, enabling you to get on with running your business.