Business loans help to make the commercial world of small and medium-sized (SME) business go round.

According to past research by the government-owned development bank, the British Business Bank, around two-thirds of the more than 5.5 million SME’s in the UK have at some stage sought funding through external business loans – one in five of them during the previous 12 months.

Such a very high dependence on business loans may be unsurprising, given the versatility of uses and the ease with which unsecured business loans may be obtained. Among the cited reasons for SMEs borrowing such funds, the following tend to be given a high priority:

• additional working capital;
• the purchase of assets, stock or the management of temporary cashflow shortages;
• funding to pursue unexpected business opportunities;
• funding for marketing campaigns; and
• additional capital to fund business growth.

Amounts Borrowed

The size of business loans required of course depends on the purposes for which the borrowing is needed – and this varies widely from one enterprise to another.

In many instances, relatively little borrowing may be sufficient to turn a small business around or allow it to achieve the growth and success it seeks. The average size of a loan, therefore, is likely to be somewhat less than £50,000 – although business loans are typically available for any amount from £5,000 up to £100,000.

How Business Loans Work

Specialists lenders of loans for small businesses tend to operate more flexibly than banks – which are the traditional alternative source of borrowed funds.

Specialist lenders, therefore, may be better attuned to the particular needs of the small business – some may even be staffed by people who have themselves run their own small businesses.

As a result, the particular circumstances and the cashflow capabilities of your individual business may be taken into account when devising your loan repayment plan. It might also involve the application of a single fixed cost of credit from the very beginning of the loan, so that you always know exactly how much needs to be repaid each month and the total amount you have to pay in interest.

If there are changes to your business finances and the ability to make repayments during the course of the loan, you might take greater comfort still from the latitude shown by some lenders who impose no penalty charges for late payment. Repayments may be scheduled if you keep the lender fully in the picture and discuss any variation that needs to be made to the schedule.

An initial online application may give you the chance to describe your business to the lender and demonstrate that it is financially sound and able to manage the loan you want. To help meet the challenges of an increasingly fast-moving business environment, it is now possible to make an online enquiry about borrowing up to £100,000 over a given period and to receive a decision almost immediately.

If your request is approved in principle, this is followed by the lender’s consideration of a formal application, to which a decision may be given and the funds transferred electronically to your business within little more than 48 hours.