- 16 Feb
How Business Loans Compare Between Lenders
I had an interesting request recently, one of my contacts wanted my input regarding how a new business loan company was likely to fit into the marketplace, and what the existing market space was like. It prompted me to jot down a few points about business loans that others might find useful.
Demand For Business Loans
There does seem to be a growing demand for business loans at present. We have a number in the pipeline as we speak, in addition to having completed some fairly substantial c. £100K lends. I would think it highly likely that it is linked to the UK economy being reasonable at present. OK, there have been concerns over Brexit, but it feels like a growing number of UK businesses are now getting on with it, rather than procrastinating about going for growth as a result of Brexit and this potential to grow is normally the driver for borrowing to finance that growth.
How Loans Compare Between Lenders
Business loans feel like a very straightforward product, that people can easily understand i.e. you borrow a sum, and repay it in installments, over an agreed period. So the simplicity is appealing. Often other forms of funding, such as invoice finance, may be able to release more cash or extend the period for repayment, however entrepreneurs understanding of those products is far lower than their understanding of old fashioned business loans.
There seems to have been a number of providers of invoice finance, expanding their product offerings to move into the loan sector, MarketInvoice and Nucleus Commercial Finance to name just two recent examples. Several of the well known brokers have also been actively arranging company loans, and there have also been new lenders entering the sector.
The key point for me about any new loan provider would be "what is unique about their offering?". For example, this could include aspects such as:
- Low interest rates and the presence or lack of any other costs e.g setup fees.
- Length of the term, some will lend for 3 months, up to 10 years.
- Ability to repay early without penalty.
- Time to arrange, 2 days is possible at the quick end.
- Security required.
- The lender's attitude to risk taking i.e. what are their criteria for approving lending? This could include the track record required of the client and their financial criteria.
- Which sectors will they deal with?
So the degree to which the offering is unique would drive it's usefulness in helping clients that are seeking a business loan.