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Business Loan basics

A business loan is a type of finance taken out by a sole trader, organisation or small business. The finance is normally provided by a high street bank or a specialist loans company, who will then set up repayments over a longer period than a personal loan. A business loan is a completely different type of finance from any other loan, so there are a few things to consider before enquiring.

Obtaining a Business Loan (Creditworthiness) - The loan amount a business receives, repayment terms, interest or APR, repayment holidays and general features of the business loan depends entirely on the credit worth of a business in most cases. Businesses are judged on their financial records and assets most of the time, particularly for larger loans, before a decision is made.

Amount and Purpose - The amount of a business loan is related to the purpose of the loan in some cases. Start-up businesses may be more likely to receive a loan under specialist government schemes, for example, or long-standing businesses with a record of excellent finances may be more likely to secure funds for expansion. When applying for a business loan make sure you shop around for any loans suited to your purpose, which are more likely to accept your application.

Cost of Loans - business loan interest and repayment costs are unrelated to business profit. This can work well in some cases as loan amounts can be fixed and won't increase if you begin to make a profit; however, if you business begins to struggle or goes through a rough patch then you might struggle to repay the loan. There are various loan options and repayment methods for business loans so always look around for the best option for your business.

Qualifying for a Business Loan - Provide accurate, neat documentation requested by the lender when trying to obtain a business loan. The amount you borrow and the type of business you run will affect how likely you are to be accepted for a loan; applying for a start-up business loan, for example, wouldn't require accurate, perfect documentation and years or financial evidence than a loan for the purpose of expansion would. Criteria for business loans depend entirely on the lender and there is normally no standard requirement across all business loan providers.

Government Schemes and Grants - A business loan isn't just available from the banks on fixed terms. Many government schemes are available, particularly for small businesses, which also work in conjunction with bank loans. Start-up businesses can also obtain grants as opposed to loans, or receive a reduced interest rate when obtaining a business loan due to government schemes.

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