5 Ways to Get a Small Business Loan

new business written on notepad

Getting funding for a new business, or to help grow an existing business, can be really difficult. Banks have far more stringent approval criteria than they used to after the global economic recession, and bad credit can close off many options to you.

It’s easy to feel despondent, like you’ll never get the capital you need to expand your business, but you mustn’t give up. There are many options available to you, one of which may be the key to securing the funding you need.

If you’ve just started looking into it, here are 5 different routes you should explore to get a small business loan:

1. Secured or Unsecured Business Loans

If your business credit score and business reputation is strong, you may have more chance of being accepted for an unsecured loan. These loans are higher risk for the lender than the borrower, which is why they can be tough to get. An unsecured loan puts less pressure on your business and doesn’t expose you to as much risk, as your assets, property or business itself will not be put up as collateral for the loan.

However, if your credit score isn’t healthy and you’ve been turned down for unsecured loans, you can look at loans secured against a business asset or unpaid invoices. Make sure you proceed with caution if you choose this route, seeking financial advice from an expert and not exposing your business to too much risk.

2. Cash Advance Loans

This is a new, creative and practically risk-free way for small businesses to raise the funding they need. Cash advance small business loans have flexible repayments linked to your cash flow, via an agreed percentage of your future credit and debit card transactions. They are designed to provide funds just when you need them, as well as not putting too much pressure on businesses with huge interest rates and strict repayment terms.

3. Start-Up Loans

These are government-backed and designed for new businesses, to help them get off the ground. Terms range from 1 to 5 years and benefits include a competitive fixed interest rate, no application fees and no fees for early repayment, as well as free support and guidance.

You can borrow as little as £500 to as much as £25,000, and you can also get free mentoring within the first 12 months of the loan period, to ensure that every penny of the funds is well spent. But, you need to meet quite strict criteria for these loans such as starting (or planning to start) a UK-based business which hasn’t been trading for more than 24 months. You are not eligible if you are currently bankrupt, are on any kind of debt management programme or have any IVAs.

4. P2P Lending

Peer-to-peer lending is a way for businesses to bypass the banks and lend to each other directly, with a company organising the loans and matching lenders and borrowers online. The process tends to be quicker and more direct than lending through banks, but rates may not be as competitive, and you may not get anywhere near the same financial protection as you would if you borrowed money from a bank or building society.

But, P2P lending sites can have a good sense of community, with both borrowers and lenders taking satisfaction in knowing exactly who they are working with, and some charitable lenders can be more sympathetic than banks ever would be on the terms of the loan if the borrower is experiencing difficulties.

5. Crowd-Funding

Peer-to-peer loans are essentially a form of crowd-funding, but it also comes in other, simpler forms. If you have a particular project in mind, you can raise funds through crowd-funding or crowd-sourcing websites and repay your loan in the form of benefits or gifts for those who have contributed.

You can raise funds for virtually anything, from a building extension to equipment purchasing, a new creative campaign or product design. As long as you can think of enticing incentives to reward donors, you can raise the money you need – in most cases though; you need to reach the target you set or you won’t receive any of the funds.

Have you ever struggled to get finance for a company? Did you use any method that we didn’t list above? Let us know in the comments section below…