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Taking out a business loan is an essential part of managing any company. At some point, you will need extra cash to fund expansion or deal with a period of difficulty, and when you do, it’s vital that you choose the right option.
While business lending has been contracting in 2023, due to the economic slump we’re currently facing, it looks set to rebound soon. Either way, companies that need financing will have to get it from somewhere. So, if you’re a business leader and you need either long or short-term funding, you need to make sure you select the right provider and product.
This is essential if you want to ensure the ongoing safety of your business, as a poorly chosen loan could lead to the collapse of your company and, in some severe cases, bankruptcy. So, you need to make sure that you take your time selecting the right provider and loan option to safeguard your business as well as your personal credit rating.
When applying for business financing and searching through the hundreds of business loan providers in the UK, you need to make sure that you take the time to understand their offering and what you need from them. To help, we’ve listed some of the key questions you need to ask before you apply for any form of business financing.
Core Questions To Ask Any Business Financing Provider
What Options Do You Offer?
Before you choose a loan provider, you want to make sure that they offer a wide range of options, so that you have the flexibility to select the one you want. While specialist service providers can be useful in some instances, when it comes to taking out corporate financing, you want to find a provider with a selection of options.
These might be within a specific niche, such as short-term loans or long-term options, but there should be various types of financing available and various ways you can customise your financing to suit your business’s unique needs. Ask about the options on offer and see how flexible the lender will be in terms of loan types, security options, overpayments and other factors. We’ve listed many of the options in the questions below, so you can see what you need to be aware of and how you can customise your business loan to meet your requirements.
What’s The APR On Your Loans?
The Annual Percentage Rate, or APR, helps you calculate how much money you’ll have to pay back over the lifetime of your financing and will determine the overall cost of your borrowing. So, you need to ask what it is and calculate how much it will cost during the time it will take to pay back your loan.
In general, short-term loans how higher APRs because you’ll be paying them back faster, whereas longer-term financing options have lower rates to make it more cost-effective. That’s because lenders have more security and a longer period of repayment for longer-term loans, whereas short-term products make them less money in the long run. Compare the APR from several lenders to make sure you get the best possible deal and don’t spend more than you need to on your business financing.
What Learning Resources Do You Provide?
Understanding the loan options available can help you to make an informed decision. For example, if you want to purchase a piece of machinery with your funding, then dedicated asset financing could be the perfect option for you, but if you don’t even know it exists, then you won’t be able to apply for it. So, ask if the lender you’re considering offers any learning resources to help buyers, including blog posts, podcasts or informational videos.
Also, see if the lending team will conduct a phone consultation to find out about your unique needs and give you the best corporate financing solution for you. If the company doesn’t provide resources and tailored support to potential clients, then this is a red flag and could be a sign of a less scrupulous or supportive lender.
What Security Do You Require?
Most business lenders require some form of security, such as a high-value asset or property, against which the loan is taken out. If you don’t pay, the asset can be sold by the lender to pay the balance of the loan. If you need a short-term funding boost, you could consider exploring unsecured business loans to find options that will help you to get some extra money without needing security.
If your provider does require security, then check the terms and conditions carefully to make sure that you’re aware of what will happen if you default on your loan or come into an issue making the repayments on time. With this information, you can choose the best option and ensure that your business and property are protected in case any issues arise.
Are There Overpayment Options?
For some loans, you might be able to overpay the balance if you have the money ready early. This option is useful for businesses that want to reduce the overall cost of their borrowing, as the less time the loan is open, the less interest can be charged. However, most lenders have set limits on overpaying, so you need to understand these before you take out your loan.
Ask what the overpayment limits are and if there are any financial penalties in place if you go over them. You can then understand how much the loan might cost and what flexibility you have when it comes to paying it back. All lenders are different, and some vary their overpayment plans depending on the financial product, so ask about every option you’re considering to get a complete overview.
What Is Your Loan Approval Rating?
The approval rating, or what percentage of loans the lender approves, will tell you how likely you are to get your financing. While a low approval rating doesn’t necessarily mean that you won’t get funding, it does mean that you shouldn’t get your hopes up. If you’re applying for a loan with a provider who has a low approval rating, consider exploring several options, so that you don’t have all your eggs in one basket. For business financing providers with a high approval rating, you can be more assured that you’ll probably get your funding and won’t need to fill out too many applications.
How Long Does The Application Process Take?
When you’re satisfied with how likely you are to be accepted, you should also enquire about the length of time the application will take. Longer applications for business funding tend to be for larger sums, while short-term or lower loans tend to have shorter application times. Still, it’s worth asking approximately how long it takes and what information you need to supply so that you can have it all ready. You’ll then be able to get the application done quicker and have an idea of if it’s worth it or not, especially if there’s a low acceptance rate for funding from this particular provider.
Can I Apply For Business Funding Online?
Linked to the above question, it’s also worth enquiring into whether or not you can apply online for your business financing. Many providers now offer online forms that are quick and easy, so you can fill them out anytime. That means you won’t have to visit a physical office to provide documentation, or call a number and sit on hold for ages. Instead, you can quickly provide everything they need and then sit back and wait for further contact.
If you can’t see an online application form on their website, ask the web chat or call to see if they have an online application form available. Also, check their online security processes, as you’ll be supplying sensitive information through the lender’s website, and you need to be assured that it’s secure before you start the application process.
Are You Regulated By The FCA?
Every lender operating in the UK needs to follow the Financial Conduct Authority’s rules, and most will share their registration numbers and details on their website. If you can’t find these details easily, then you should ask to see them and learn how the organisation follows the relevant regulations. If you’re uncertain, then you should shop around to find a lender that offers the security you need and is clearly meeting the FCA’s requirements.
A Final World
Taking out business financing can be an important step for any organisation, but you need to make sure that you choose the right product and provider. The pandemic left the UK taxpayer with over £400 million in unpaid debts by businesses that defaulted, and with the current issues we face, including hyperinflation and economic uncertainty, organisations face even more heartbreak and financial challenges. Asking the right questions of your financing provider is crucial if you want to get the perfect business loan for your company. Use this article to create a checklist so that you’re secure in the knowledge that your loan is right for you before you sign on the dotted line.