FAQs

Business loans are not necessarily hard to get provided you are open to receiving finance from organisations other than banks. Banks are renowned for having strict tick-box criteria that does not suit everyone, so it is vital that businesses are open to exploring other, less traditional avenues when they seek more flexible terms.

Having bad credit certainly can make it difficult for you to acquire a business loan, particularly from traditional lenders and many business owners often fear that it is impossible to get a business loan with bad credit.

Banks, for instance, are known to have rigid guidelines when it comes to funding businesses with little or bad credit. They often decide against lending to individuals and SMEs with bad credit as the risk is deemed too high.

However, an unwillingness from the banks to give you a business loan does not always equate to a lack of funding for your business. There are alternative financial lenders, that are prepared to work with businesses in certain situations.

Among the many concerns which hold back small business owners from seeking a business loan, is the uncertainty regarding a down payment. However, it is a common misconception that they must pay a deposit in order to secure finance. In fact this sometimes stops them applying for business finance as they are concerned that they may have to give up capital.

There are some financial scenarios where the borrower is required to put down a certain amount of cash, (e.g. asset finance), this is not always the case with business lending.

There are no hard and fast rules and each case will be assessed on merit. In general terms we advise our clients to be prepared to deposit circa 25% to 30% of the property or business value. ie a LTV in the range 70-75%. Mortgages for pubs will generally be limited to 60% to 65% LTV due to the higher risks associated with this sector of the market. Sitting tenants can often secure a higher advance.

With a Property Development loan much depends on the type of project being undertaken, the overall borrowing requirement and the anticipated profit margin that project will generate. In addition the proven experience of the developer, their financial standing and / or the proposed contractor will also count heavily towards the underwriting decision.

In general terms yes. If you are buying a business trading from freehold premises we will obtain a professional report to verify the overall value of the business goodwill etc which is sometimes referred to as ‘market value’ or MV1. Subject to satisfactory confirmation it is usually possible to secure an advance against the overall business valuation. Where the purchase of a trading business also includes machinery, vehicles equipment, stock etc. it is generally more appropriate to structure a separate loan to acquire these assets on a short- term lease or stock finance arrangement.

When an underwriter is assessing a mortgage application the key criteria is the applicants ability to afford the loan repayments, sometimes also referred to as a ‘stress test’.

Many mortgages will offer an ‘easy start’ period on interest only terms but most mortgage lenders wish to see both capital and interest repaid thereafter. In assessing your ability to repay the loan the underwriter will look at business income / profits via any accounts held and any other sources of confirmed income that you have. In situations where you are renting business premises and wish to purchase a freehold property (perhaps as a sitting tenant) then the rent you pay will be assessed as an ‘add back’ when looking at the overall position.

The applicant will have no fees to pay to secure an ‘agreement in principle’ ( AIP) offer from the mortgage provider – we offer this service free of charge. Once the AIP is accepted by the client it will be necessary to schedule and pay for any valuation report(s) needed by the underwriter. The cost of which will vary dependant on the size and scope of the project but on commercial schemes we normally advise to budget £2 per £1,000 of property value.

After the valuation reports confirm a positive and viable loan proposition the lender will issue the formal offer subject to legal due diligence. At which point a non – refundable commitment fee may be payable by the client to cover underwriting costs – this is generally deducted from the loan set up fees. Some lenders will require their own legal costs to be covered by the client though it may be possible for the clients / lenders solicitor to represent both parties. In addition to the interest charged on the mortgage or development loan there will generally be a set up fee of between 1% and 3% of the loan.

ERC stands for “Early Repayment Charges” generally applied on longer term Commercial Mortgages ( to protect the lenders anticipated margin on the deployment of the funds) if the loan is redeemed in the early years. Many lenders will charge ERC’s up to a three or five year point in the loan usually on a reducing scale but these can be as high as 5% of the mortgage amount if a facility is repaid in year 1.

A balance sheet is often described as a “snapshot” of the financial health of a business. It enables a business to determine whether it is running out of cash as it continues to operate or whether things are running along as smoothly as they should be.

It is considered the financial statement of a company and within it, the liabilities, assets, equity capital and total debt of the business are listed.

A balance sheet is usually calculated after either every quarter, six months or year. Within the balance sheet, it is expected that the sheet is split into two – one side includes the assets, the other includes liabilities.

The reason why lenders want to see this is so that they can ascertain the financial situation of a company before deciding to loan out money. It is important for lenders to understand the financial obligations of a business before deciding to go ahead with a loan.

A profit and loss account shows a business’s revenue and expenses at any given time. They often span over a month or various months within a year. Therefore, it is a financial statement that illustrates the health of a business.

A profit and loss account will show the state of a business’s operation and will demonstrate whether a business has made a profit or loss over a set period.

If a business has earned more income in a time period than it has spent, the business will have made a profit.

A profit and loss account usually consists of a business’s credits, then deductions are made – including overheads, cost of sales and allowances. Ultimately, this will provide a business with a figure that indicates whether it is in net profit or net loss.

A profit and loss statement is essential for good business management. It also helps a business to calculate income and therefore corporation tax.

A profit and loss statement and a balance sheet are the two most important statements in business management. Together, they enable a business to review its financial health and both will need to be presented to a lender.

A secured loan is a loan in which the borrower needs to provide assets as security or collateral to the lender, in case the loan cannot be repaid. Often, a secured loan is a large sum of money that you borrow against an asset you own, such as your home.

A secured loan is often seen as a riskier option for borrowers, so it is important to do your research beforehand and to ensure that the finance provider you borrow from explains everything you need to know.

Secured loans can be a good option for businesses as the interest rates tend to be cheaper, as it is less risky for lenders when compared with unsecured loans.

Secured loans can offer businesses the help they need, especially if they have been denied an unsecured loan or their business is at an early stage. Secured loans also come with some advantages, such as often lower rates of interest, with the added benefit of helping to build a borrower’s credit score.

Unsecured loans are different to secured loans, in that the borrower does not need to provide charges or debentures over their assets as security or collateral to the lender. Though this option is often preferred because it gives the borrower peace of mind regarding their assets, it is riskier for the lender, so interest rates can be higher. The maximum amount of funding available is also often lower than that of secured loans.

An unsecured loan is often the more viable option for SME’s, as often, they do not yet have the assets required to borrow against. Instead, your credit score will be taken into account for an unsecured loan, as any lender will want to ensure that you are capable of paying back what is loaned to you.

The process is fairly straightforward – as the borrower, you agree to make regular payments until the loan is paid in full. If you do not make the payments, you may end up incurring additional charges, which is why any responsible lender will carry out the appropriate due diligence checks to ascertain whether a borrower can realistically afford the payments.

Invoice receivables, also referred to as accounts receivables, are a legally enforceable claim for payment by a business for goods supplied and/or services provided, for which they are awaiting payment. Usually these are in the form of invoices raised by a business and sent to the customer for payment, within an agreed time frame. Invoice Finance, usually calculated based on invoice receivables, is a financial product that allows businesses to unlock the cash they have tied up in unpaid invoices.

There are two types of invoice finance: Invoice discounting and factoring.

Invoice discounting is essentially an asset-based financial product that allows businesses to access money tied up in outstanding invoices by selling them for a payment equivalent. Invoice finance is a type of asset-based lending – the book debt (also known as the sales ledger) is the asset against which the funding is lent.

It is the alternative solution to business finance that SME’s are using to help manage cash flow. For businesses, especially SME’s, this is a lifeline that is often needed. It enables businesses to access funds immediately after raising an invoice, rather than having to wait for their customers to pay.

Most businesses tend to prefer this option as the invoice finance company does not take on the responsibility of handling the sales ledger management, which includes the collection of invoices and can jeopardise relationships with customers if outsourced.

Secondly, there is invoice factoring. This is similar to invoice discounting, however the difference between the two is that discounting means a business handles their own sales ledger management, credit control and collection of invoices.

Asset based lending, also referred to as commercial finance, is a type of loan available to businesses that involves offering a business' assets as security to the lender. There are numerous ways to provide security from assets, but generally, assets that are deemed appropriate are a business’s accounts receivable, inventory or equipment/machinery.

Asset based lending is a strong financial solution available to businesses, as the loan is given on the agreement that the value of the assets is put down as collateral. The type of assets put down by a borrower will determine the terms and conditions set by the lender.

This type of lending is good for businesses as it allows them to access the funds they need to reach their growth potential by leveraging the assets that are tied up in their business.

Asset based lending has become huge within the finance industry and asset-based finance products have been solving the challenges faced by UK businesses for decades.

A business cash flow cycle explains how cash flows in and out of a business. Finding the right balance of expenses, revenue and receivables is an important part of getting a business’s cash flow cycle right. When that balance is achieved, it allows businesses to make the right amount of purchases to continue with their operations smoothly.

Receivables do not translate into actual cash until the money is deposited into a business’s account. Therefore, to have the optimum cash flow cycle, it is important to get the receivables translated into payments as quickly as possible.

To manage a business’s cash flow cycle better, there are numerous cash flow management techniques that can be applied. However, if a business is failing to manage its cash flow cycle effectively, it is definitely worth looking at working with a finance provider to help improve cash flow.

Adverse credit is the term that is used to describe a poor credit history.

Failing to keep up with paying credit commitments will contribute to a person having adverse credit and this is seen as a negative. Additionally, a series of late payments can also result in someone having adverse credit on their credit report.

Having adverse credit will mean that an individual will find it difficult to access finance, as many lenders have policies against lending to people with adverse credit. However some secured products are still on offer for these 'turnaround' situations.

When someone takes out a form of credit, the lender will report to credit reference agencies to notify them about whether you have made your payments on time – and in full. Each time there is a missed or late payment, lenders will contact these agencies and the borrower will get a ‘red tick’ on their record that remains there for up to 6 years.

If there are missed or late payments on someone’s credit report, these will flag up to lenders when they do a credit check. Some lenders may refuse to lend money entirely, where as other financial providers may choose to give a business the money they require, but with an interest rate adjusted accordingly.