How To Use Loans To Your Advantage

Some people in the UK have the impression that borrowing money should be avoided at all cost. However, this impression is not one hundred percent correct. You can use loans judiciously to meet financial obligations and grow your business. The trick lies in recognizing the right loan and using it properly. Below are some excellent loan ideas for you to consider.

Unsecured Loans

This is one of the most popular loans in the UK for small business owners. You run a business and you have a current account. If you have an excellent relationship with your banker, you can easily get an unsecured loan any time you need one. This loan is based on trust and turnover. You pay in cash and cheques into your current account regularly.  You also withdraw money from your account and give cheques to customers. Based on the amount of money that goes in and out of your account, you can apply for an overdraft any time you need short-term funds. The bank manager will simply look at your account history and approve the loan because there is no chance of default. An overdraft is an unsecured loan and the tenure is usually 30-90 days.

Secured Loans

In case the unsecured loan does not meet your requirements, you can apply for a secured loan. Usually, this loan is relatively difficult to get. This is because your loan application has to be reviewed by your account officer, the branch manager and even the risk manager. In addition, you must provide collateral before the loan will be approved. Before you get this loan, your banker will look at a number of factors.

Conditions for secured Loans

First, you should state the purpose of the loan. Maybe you need the loan to buy machinery to enhance business operations. It is also possible that you need the loan to diversify or expand business. The point here is that when you apply for this loan, you should make it clear that it is in the interest of your company that you get the loan. Your loan application must include your repayment plan. If your banker agrees that the loan is viable and that you have the resources to repay the loan (in instalments), you move to the next stage.


Banks are not in business to lose money. This is why you must provide collateral before you get a secured loan from your banker. In the unlikely event that you do not repay the loan, the bank will sell your collateral and recover the money. Note that your collateral is just to protect the bank in case the unexpected happens. Banks give loans from the perspective of investment and not from the perspective of collateral.

 Using Loans Properly

Some people are opposed to borrowing because they fear it might lead to chronic debt and financial trouble. However, if you use loans judiciously, you have nothing to fear. Below are some ways to ensure that borrowing does not lead to complications in future.

Do not Borrow More Than You Need

You should never borrow money you do not need. This is because a loan comes with bank charges and interest payment. Before you borrow money, you must have a legitimate need for the money. As soon as you get the money, you should put it to good use. This way, you will repay the loan happily because it is beneficial to you.

Do Not Misuse the Loan

The only reason people get into trouble with borrowed money is that they misuse the loan. You had a plan when you applied for the loan. Now that you have the loan, put that plan to work. Use the cash for the right purpose and you will not get into any trouble.

Follow Your Repayment Plan

A loan is not a grant. You should always have this at the back of your mind when you borrow money. Follow your repayment plan and make it a priority to repay the loan as soon as possible. This way, you will be eligible for another loan in future if the need arises.

Final Word

Good credit is the catalyst of economic development. Borrow money at the right time, use it judiciously and watch your business grow.