Often known as business cash flow loans and short-term business loans - commercial loans are business finance options provided by private sector funders. This can include high street banks and other financial institutions. Commercial loans will require you to repay them, with an element of added interest, over a set period of time.
One of the great things about business cash flow loans is that you don’t need to give up a portion of your business to access the cash. It means you can retain full control of your business.
Commercial loans are also relatively quick to access, meaning you get access to cash that helps you grow.
Repayment schedules can also be set up flexibly to suit your business' needs.
A trading business will be required to produce the latest annual accounts and up-to-date management accounts showing how the business is trading up to date to get a commercial loan. Bank statements up to 6 months old will also be requested to show up-to-date financial information. Proof of tax paid to date is also required, as well as the aged creditors and debtors if the business trades “business to business”.
Financial forecasting for at least 12 months are required to show the business can afford increased loan repayments and the business may need to produce proof of future sales.
A business plan to show the future plans for the business may also be requested, in addition to personal profiles for the owners or directors showing assets and liabilities, and income and expenditure for the individuals.
Four to six weeks should be the average period of time it takes for a loan to get approved. If all the required documentation is available, however, it could be under two weeks.
Banks where the business account is already domiciled will tend to process a lending application very quickly for conventional debt funding. This is often between 3-5 working days, assuming a complete and comprehensive lending proposal is submitted.
Where an approach is made to a new lender, the process from submission of an application to the decision can vary significantly between 2-6 weeks, with an average experience being 3-4 weeks.
Typical interest rates for a commercial loan range between 8-15% depending on the risk profile of the business, but could increase above 15% with some alternative lenders. Repayment terms are usually up to 5 years, but some lenders would allow up to 6 years. A commercial loan to purchase a property could have a 25 years repayment period.
An early repayment charge is a penalty that is given as a result of paying off your loan sooner than agreed or overpaying outside of the limit allowed by your lender.
There can be penalty fees for early repayment of your loan, which should be in the loan agreement signed before the loan is drawn down. Restructuring the loan would involve extra work and probably fees by either the existing lender or definitely through another lender – restructuring a loan is not a guaranteed option.
Credit history and financial stability are important factors in assessing loan applications and will impact on the decision of the lender. A poor credit history will need a full explanation but would usually result in a decline. Business and personal credit ratings are also important components of a loan application that will be considered.
If you’re considering business cash flow loans, get in touch with us today. One of our specialists will be able to advise you on how to get started with tailored advice for your business.
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