Small Business Loan

Getting money to get your business on the road.

Unlike with personal lending, the only place you'll easily get a small business loan is an old fashioned bank- most are equipped with business managers for this purpose. Most such loans are secured against your house (except for very small amounts indeed) and if pure cashflow is the issue, you should also investigate factoring.

When you're running a small business, you don't have many options. Big businesses that need to borrow in the millions can go to venture capitalists, angel investors or pursue an AIM listing. Small businesses can't; and worse still getting a small business loan isn't easy, because all the sexy new lenders (the supermarkets, Direct Line etc.) don't lend to businesses.

It leaves you with very few options, the most important being your bank. To have any hope of getting a small business loan out of your bank, you need a good business plan and a good relationship with your bank manager. If you don't have these, then head for Business Link, UK Online for Business, or even your local Citizens Advice Bureau. None of them can give you a small business loan, but they do dispense advice- including for example information on regional grants.

Why won't most lenders lend to business? The official answer is: because plenty of businesses go to the wall, and are badly managed- which makes it a risky lending policy. That's absolutely true, although it's also a fact that in comparison with the US, the banks are utterly over-conservative, and this is one of the toughest countries in which to get started.

There are some other financing options in general- check out factoring (start with companies like Alex Lawrie) who can reduce the need for a loan by restructuring your cashflow

You do have one more option for a small business loan, and that's putting your money where your mouth is and getting a loan against your home. If you have any faith in your business, then perhaps this is the acid test. Strangely, few lenders will turn you down now that there's a security against the loan! Don't just speak to your existing mortgage lender- plenty of other lenders (including the business branches of banks) will consider remortgage or secured loan business irrespective of the original lending partner.

One thing to be aware of with secured business loans: you may well have more repayment options than with the mortgage. The banks do recognise that business cashflows are different to personal ones, so the "fixed" and "variable" rate repayments may be augmented with other options; for example artificially low repayments across the term, plus a final "balloon" repayment at the end. Barter for the small business loan deal which suits your business best.

So getting a small business loan is an unpleasant experience- for smaller amounts you really are stuck with the banks; but if you're prepared to take the risk (and really you should be) to get larger sums of money, head for a secured loan.