Are you running a business? If so, you might come across situations when you require an instantaneous injection of cash. Whether you are a start-up or an established business, you might run short on working capital. Of course, you need a constant supply of finances to meet day-to-day business processes.
Business loans could be applied for from banks or direct lenders, but you will have to meet the terms and conditions they have set. Bear in mind qualifying for short term business loans from a direct lender involves a different process from qualifying for personal loans.
What are short-term business loans?
loan for short term business are unsecured loans aimed at helping you meet day-to-day business operations. They are ideal when working capital is not sufficient. You might need money to hire new staff, introduce a new product line, purchase inventory and expand your business. Small business loans are unsecured in nature. They do not require a guarantor, in other words. You can obtain approval for these loans despite a bad credit rating, but interest rates will be quite high.
What is the repayment length of short-term loans for business?
Business loans could be small or large. Short-term business loans last for up to five years, while long-term business loans last for more than five years. It depends on the amount of money and how long the loan will last. Because small business loans could last for up to five years, it does not mean that you will qualify for that long period. For instance, if you are borrowing only £1,000, this is too small and, therefore, cannot be spread across five years. You will rather be required to discharge this debt in fell one swoop.
While it is advertised that small business loans come with a five-year repayment period, it does not mean that every lender will treat it as short-term. Some lenders assume that a business loan is small if it is paid down within 12 months, but it will be considered a long-term business loan if its repayment term is longer than 12 months.
What is the maximum amount you can qualify for a business loan?
There is no specified limitation on what you can borrow through a small business. There are different aspects that come into play while qualifying for a small business loan. At the same time, some lenders may lend you up to £5,000 while others may lend you up to £10,000 as a small business loan. But how much they would be able to approve depends on your credit rating and repaying capacity.
Lenders might restrict the loan amount when your credit rating is abysmal. They will also take into account your repaying capacity. Even if your credit rating is stellar, your chances of qualifying for a small business loan are not so high if your repaying capacity is not impressive.
Another factor is whether you are a new business or an established business. If your business is new, you would not be able to borrow a large amount of money even if your lender has a policy to do so. This is because the threat is too lofty. The lending decision is made based on the projected profits. It is likely that you fail to get your enterprise off the foundation.
If you are borrowing money as an established business, you will need to ensure that profitability is consistent. Instability calls your credibility into question. As a result, you will be restricted to borrow a large amount of money.
You can qualify for a business loan despite a bad credit rating
Your poor credit rating will not get in the way of your qualifying for a business loan, but you will be charged high interest rates. In addition, you might find it hard to qualify for a large amount of money without any additional conditions. Business loans for bad credit are available from almost all lenders, but most of them might not approve more than £5,000. This is because you may fall behind on payment. If you desire to borrow better than that, you may be asked to arrange a guarantor. No lender would provide you with a large business loan with no guarantor if your credit score is not stellar.
You may have to give a personal guarantee
If your business has a separate legal entity, you will have to prove that your business has the potential to earn money. If your business falls to refund the obligation, your lender will lose its money. Even if you are taking out a small business loan, a lender would require you to give a personal guarantee. This will minimise their risk because if your business struggles to repay the debt, you will be held accountable to discharge the debt.
If you are running your business with your partners, they will also have to give a personal guarantee. But remember that if any of your partners’ struggles, you will have to settle the whole debt. A personal guarantee from business partners is required when you meet any one of the conditions:
- Your business credit score is low. Your credit history is bad enough to call your business credibility into question.
- Your credit score is good, but your business is struggling to maintain stability in profits.
Some lenders, however, do not require a personal guarantee if the borrowing amount is up to £5,000. It is always advisable that you carefully check this with your lender.
Summing up
Short-term loans for business in the UK are not so difficult to qualify for, provided your credit score is stellar and your business has stable profits. However, you can apply for these loans despite a bad credit rating, but you will be restricted in the loan amount. In addition, you will end up with high interest rates.
