Q&A with ABF on term loans


Alternative Business Funding

09 June 2017

A vast and often bewildering array of funding choices are available to SMEs. In this feature Alternative Business Funding helps explain one option: term loans.

Business has been pretty good for me lately, but I run into a problem from time to time: Every once in a while, I come across a great deal that could really help me grow, but I can’t afford the additional expense all at once.

Hm, it sounds like your small business might be a good candidate for a term loan.

Term loan? You mean asking a bank to lend me £150,000 over 20 years? No thanks, I don’t need another mortgage.

Probably not, but that’s not what a term loan is. Term loans can provide your business with ready cash that you pay back over just a few years, rather than decades. And they can be approved much more quickly than your average mortgage. Today, it’s easier than ever to find alternative, non-bank sources for significant amounts of cash for your business… though you’ll usually need to meet a few essential requirements.

Ah, the fine print, right? So what’s the fine print for a term loan?

Well, first, you typically need to have been in business for at least a couple of years. You’ll need to be profitable, too, and have annual revenues that are pretty healthy… on the order of at least £75,000 a year and up.

OK, I qualify so far. What else?

Term loans are usually available only to businesses with employees. And you’ll also need to be able to guarantee the loan somehow, whether that’s through good personal credit, guaranteed cash flow or collateral of some kind.

Right, still no problem. So how do they work? What makes them different from a mortgage?

Well, they’re usually for much shorter terms… generally one to five years, although longer-term loans of 10 years or more are also available. Second – and this is the really appealing part – you can be approved in as little as a day or two and can have the money in your account shortly afterwards, usually in days and almost always in less than a week.

Wow, I like that. Now, what’s the catch?

Of course, there’s a price for that kind of convenience. You’re typically going to pay more in interest than you would for a standard bank loan. And the time you have to pay back the loan is usually fairly short too, though your payments can be handled weekly, bi-weekly or monthly, and there’s generally no penalty for paying back early.

Makes sense. So besides giving me fast cash for when I come across inventory at a really good price, what else could I use a term loan for?

Businesses can use term loans for lots of things: paying for additional staffing during busy seasons, covering expenses during a seasonal slowdown, buying a new piece of equipment that can help you operate more quickly or efficiently, expanding to take advantage of new opportunities… you name it.

Sounds great. How do I get started?

As with any other type of financial decision, it pays to shop around and ask questions. Search for alternative lenders or brokers that seem like a good fit for your business, and compare interest and payment terms before making a decision.

Ask your local business association or industry trade group for recommendations, and make sure the benefits you expect justify the costs. There are plenty of online resources to help you do your homework, so take advantage of them.

Read the Q&A with ABF on peer-to-peer lending here.

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