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A Guide To Business Loans

Businesses need to finance various investments or projects on a regular basis. The projects include creating or expanding the business, launching a new product or service, funding a buy-back of corporate shares, buying equipment or vehicles. The granting or declining of a loan is subject to a thorough financial analysis and, in most cases, the consideration of the loan committee.

As part of the financial analysis, credit institutions will be interested in the applicant’s profit and loss account, balance sheets as well as in the direction taken by the company’s management. The assessment of corporate credit risk is based on several steps.

The decision-making process for granting business loans to companies is thorough. The lender conducts initial assessments of the company based on the accounting documents presented by the person in charge of the company. This allows the loan officer to formulate relevant questions.

Above all, it is important for the lender to understand the needs of the company. The initial assessment does not prejudge the final decision that will be taken after the detailed analysis of the application.

Company analysis

The analysis will endeavour to explain and appreciate the financial and operational status of the entity. It is not limited to the financial aspects of the business, but also considers the economic aspects.

An appreciation of the opportunities and threats of the business’ operational environment as well as its strengths and weaknesses. These factors are essential to anticipate any difficulties. All this information is required by a lender to reduce the risk of non-repayment.

Eventually, the detailed analysis will allow the financial institution to corroborate its first conclusions. The results of this detailed analysis are important. It is a fundamental element in the final decision of the credit institution.

What are the different types of business loans?

In the most classic form, company obtains funds in return for which it pays interest. The repayment is generally done on a monthly basis, but can follow a flexible plan according to the terms provided for in the agreement. Each term includes the loan amount and interest.

The terms applicable to different types of loans defines its category. The same applies to the interest rate applied and the conditions of obtaining credit. There are four categories:

• Very short-term loans are more like facilities than a real loan with maturities rarely exceeding six months. These can come in the form of authorized overdraft, cash advances, revolving credit, line of credit, bridge loan and more.
• Short-term credits repayable over a maximum of three years;
• Medium-term loans have a repayment period of between three and seven years
• Long-term credits are repayable in more than seven years

What is the role of the business plan and financial forecasts in the loan application?

Obtaining a business credit requires the creation of a loan file, with the business plan being the central element. It allows the lender gain in-depth knowledge about the company.

It also presents the firm’s prospects for the medium and long term in addition the project for which the application for the loan is based. In some cases, the file may specify the preferred repayment terms and, if necessary, the guarantees that the business can provide. A complete and accurate business plan is plays a key role because it outlines the financial forecast.

It is important that loan applicants use real and verifiable data relating to market environment, such as competitors. The plan should specify an achievable revenue target in relation to the production capacity and the available resources (human, material, financial).

The business plan and the attached financial documents allow the lending institution to assess the application.

How does the lender reach the final decision?

The decision involves not only the account manager responsible for the company’s account, but also the loan committee. A copy of the company’s file is presented to this committee, which is responsible for granting or rejecting loan applications. The client manager is likely to provide, where appropriate, the necessary clarification on the company.

The credit institution also determines its decision based on the history of its relationship with the company’s executives. The lender will consider their ability to perform well.

The professional or personal guarantees provided by associates or managers contribute to a favourable final decision.

7.8% APRC Representative

Representative example: Assumed borrowing of £37,700 over 180 months, with a fixed borrowing rate of 6.4% per annum for the first 36 months, followed by 144 months at the lenders standard variable borrowing rate of 5.9%. There would be 36 monthly instalments of £356.89 followed by 144 instalments of £347.59. Total amount payable £63,021 comprised of; loan amount (£37,700); interest (£21,791); Broker fee (£3000) Lender fee (£530). This would result in an overall cost of 7.8% APRC.

 

Accepted.co.uk is a trading style of Paloma Digital Limited. Paloma Digital Limited is an introducer and we will search our panel of brokers to find the right loan for you. Data Protection Registration Number: Z9868049.

Paloma Digital Limited is authorised and regulated by the Financial Conduct Authority. Firm registration number 769794. See www.fca.org.uk

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

 

7.8% APRC Representative

Representative example: Assumed borrowing of £37,700 over 180 months, with a fixed borrowing rate of 6.4% per annum for the first 36 months, followed by 144 months at the lenders standard variable borrowing rate of 5.9%. There would be 36 monthly instalments of £356.89 followed by 144 instalments of £347.59. Total amount payable £63,021 comprised of; loan amount (£37,700); interest (£21,791); Broker fee (£3000) Lender fee (£530). This would result in an overall cost of 7.8% APRC.

Accepted.co.uk is a trading style of Paloma Digital Limited. Paloma Digital Limited is an introducer and we will search our panel of brokers to find the right loan for you. Data Protection Registration Number: Z9868049.

Paloma Digital Limited is authorised and regulated by the Financial Conduct Authority. Firm registration number 769794. See www.fca.org.uk

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.

Paloma Digital Ltd. Company Registration No. 6934249. Registered Office: Office 229, 275 Deansgate, Manchester M3 4EL.