How Do Small Business Loans Work?

Small business loans offer financial support to businesses, which can be used for various purposes to help the business grow.

This type of loan is typically offered by banks, building societies, or private lenders, with the terms of the loan depending on the lender and borrower agreement. 

To be successful in being granted a small business loan, companies will typically need to demonstrate they are capable of repaying the funds borrowed. This entails providing a solid business plan, financial records, and in some cases personal assets or finances as collateral.

Lenders will also look at the business’s financial wellness, using credit checks to assess the credit history, revenue, and industry experience to ensure the business is profitable and has longevity. 

The repayment terms of a loan can vary depending on the size of the loan and the loan type (secured/unsecured).

However, small business loans are usually repaid through fixed monthly payments over a set period, which includes interest. 

While a small business loan is primarily used for funding the growth of a small business, it can also be used to address short-term financial needs.

Here are some of the ways businesses can use a small business loan to their advantage: 

Managing Cash Flow
Being granted a small business loan can help a company better manage its cashflow by providing the necessary funds to cover financial expenses, such as salaries, rent, and utilities.

This allows the business to maintain a stable working environment with minimal disruption to operations even during periods of low revenue, as the loan bridges the cash flow gap. 

Expansion
Businesses can take our a small business lock to help fund its growth and expansion. It can help fund the costs of opening new locations, developing a franchise system or expanding into new markets. 

This allows a business to accelerate its growth and take advantage of new markets and opportunities for expansion.

Marketing and Advertising

A small business loan can be a valuable resource for investing in a business’s marketing and advertising practises to increase its brand’s visibility and reach new customers.

The funds can be used in a variety of ways from social media and influencer marketing to SEO and website optimisation, content marketing, PR and events, and branding. 

Equipment and Inventory
Small business loans can be used to purchase new machinery, technology, or inventory to support business growth and operations. 

his could involve buying more advanced machinery to increase production output, upgrading technology or software to improve efficiency, and increasing the amount of stock purchased to meet the growing customer demand. 

Recruitment
Businesses can use a small business loan to fund their recruitment efforts, allowing a business to grow its team of employees in response to the increasing demand.

This can involve hiring employees to fill key roles such as salespeople, customer service, or specialised staff to enhance operation.

Emergency Costs
A company can also use a small business loan as a crucial lifeline to address unforeseen emergency costs within the business, which could otherwise disrupt normal operations.

These costs could include the breakdown of equipment, supply chain disruption, inventory shortages, and legal issues.

Refinancing Debt
A small business loan can also be used by a company to refinance existing debt. This can include consolidating their existing debts into a more manageable single payment, simplifying the business’s financial obligations and reducing the risk of a missed payment.

Refinancing debt can also help the business to secure better terms on what they are currently lending, gaining an extended repayment period, lower monthly payments, or better interest rates. 

Our flexible small business loans, which offer up to £250,000, are designed to meet the unique needs of businesses in multiple different sectors.

Our accommodating repayment plans mean you can choose a repayment term that aligns with your growth plans.

The term of the loan can vary between 1–5 years, and be repaid in equal monthly instalments, allowing you to manage repayments alongside your business’s cash flow.  

Our loans can be used for almost any purpose, from covering working capital, scaling your operations, financing new contracts, recruiting new people, purchasing equipment, or investing in marketing. 

It’s quick and easy to get the ball rolling, simply complete some basic details about you and your business, alongside providing us with open banking access.

Once these initial steps are completed, a member of the team will contact you to help you complete the process of seamlessly securing your loan.