Overcoming credit hurdles: long-term business loan options in the UK

After the pandemic, many businesses were encouraged to borrow money from the government at the lowest possible interest rates. Seemingly affordable then, many small businesses are struggling to discharge their debts due to inflation and economic downturn. These two factors have led to decreased sales and increased costs of operations. According to the current scenario, entrepreneurs must be given more flexibility to repay the debt. When businesses struggle to have enough money to continue their operations smoothly, they can rely on long-term business loans.

Business loans could be used to meet any kind of business expenses. Small business loans are aimed at funding working capital, while long-term business loans are aimed at meeting long-term business expenses such as expansion. While small business loans take only one year to repay the debt, large business loans take more than a year. Since they are repaid over a period of several months or years, you can easily plan your budget. Money goes out in a small chunk every month that helps you retain money to keep the ball rolling.

Long-term loan options in the UK

Long-term business loans are ideal for those who need money for their businesses but do not want to lose a share of ownership to investors. Interest rates for long-term loans are more affordable than short-term business loans, and therefore, these loans are manageable. There are several types of long-term business loans, such as:

Secured business loans

Secured business loans can come in handy to help you meet large business expenses. They are called secured because you borrow money against an asset. The asset you secure against your loan must be of higher value so that your lender can recover their money in case you default. It depends on the lender which asset they would ask for collateral. If your business has a separate legal entity, your business assets will be secured. If your business has no separate legal entity, your personal assets would be secured against the loan. In most cases, your house is considered collateral.

If the loan amount is quite large, your lender could ask you to give a personal guarantee. It means if your business fails to discharge the debt, you will be liable to do so from your own income. So, do not assume that you can abdicate responsibility for paying off the debt just because your business has a separate legal entity.

- Secured business loans are risky because there is a high risk of losing your valuable asset.

- If you make a default, you will also lose your credit points. This will make it even harder for you to borrow money at lower interest rates down the line.

Secured loans also include asset financing or equipment financing. If you are looking to borrow money to purchase equipment, the equipment will serve as collateral. You may need to secure your loan against any other assets, whether or not your business has a separate legal entity. It is still advisable that you carefully confirm it with your lender.

In order to qualify for a secured business loan, you should have a decent credit rating. Bad credit applicants are also welcome, but a long term loan for bad credit comes with a high interest rate. Not only will the loan amount be restricted, but the size of the monthly instalments will be high too. This might make it complicated for you to lend money.

Unsecured business loans

Contrary to secured loans, unsecured long-term business loans are quite difficult to obtain. The repayment length of these loans is not more than five years. Long-term unsecured loans also include government-backed loans. However, these loans are not available all the time, and you must meet terms and conditions to qualify for these loans, such as having been trading for two to three years.

Lenders could approbate your application for long-term unsecured business loans if you prove that your repayment capacity is stellar. Even though your credit history is up to scratch, you will be charged high interest rates. This is because these loans are riskier than secured business loans.

Unsecured business loans carry high interest rates, and therefore, the risk of falling into debt is quite high. This is because the size of the monthly instalment will be high due to a short repayment plan.

When unsecured loans are repaid over a period of five years, they are considered long-term. This is because most of the lenders do not approve an application for more than a year. So, if you are looking to borrow a large amount of money and you do not have security, most probably you will be turned down. No lender would sanction a loan without collateral if they find that the loan is to be paid down over an extended period.

Normally, unsecured business loans last for a year. In some cases, they may last for 18 months. Here are the best unsecured business loans you can consider:

Quick business loans

If you need a small amount of money, you can consider taking out a quick business loan. These loans are beneficial when you need to borrow a small amount of money. These loans could help you bridge the gap in working capital.

However, in order to qualify for quick business loans, you will need a good credit score. If your credit score is stellar, your chances of qualifying for these loans at competitive interest rates are quite high. However, if your credit rating is not so stellar, you will have to apply for quick business loans with no credit checks.

These loans come with a very small amount of money. No credit check facility is available for those who cannot afford to lose their credit points because of hard credit checks. Remember that business loans without any credit checks charge very high interest rates. If you fail to repay the debt, the loan amount will quickly roll over.

Not all lenders grant these loans without any credit checks. Some run soft credit checks. They do not appear on a credit file, and hence, you do not lose your credit points. Quick business loans should be taken out with caution.

Invoice financing

Invoice financing is another unsecured business finance option. This is not a loan, as you do not have to pay interest. Invoice financing is meant for those who sell their products and services on credit. They can be helpful to fix the cash flow problem.

You will borrow money from invoice financing companies against the value of your invoices. They usually lend up to 85% of the total invoice value, which you can use to meet your business expenses. Once the company collects money from your customers, it will return the rest of the amount after deducting its fees. The best part about invoice financing is that you do not need a credit check.

The bottom line

Long-term business loans can help you meet large business expenses, but they require collateral. In some cases, you may be required to give a personal guarantee.

There is no doubt that long-term business loans could prove to be an effective solution, but be cautious while borrowing money.