There is a wide range of lenders offering business loans, so there are a few things to consider to find the right option for your business
There are a large range of lenders offering loans to businesses these days, meaning the eligibility criteria is ever widening, and there are differing application processes and interest rates based on the lender as well.
High Street Banks
The big high-street banks aren’t lending like they were prior to the credit crunch, and many businesses simply aren’t suitable for bank lending.
Approaching a major bank for a loan will require you to have many items handy and in good standing; a strong balance sheet, a long trading history, and significant security to offer. For those businesses where bank lending is the best option due to their eligibility, they will offer the lowest interest rates – but more often than not businesses find it’s a long and arduous process that eventually ends up with a ‘no’.
The rise of challenger banks since the credit crunch is a boon to small businesses with a less-than-perfect credit history. Challenger banks have a strong appetite to do business in order to compete in the market, and are often willing to fund applicants that the mainstream banks wouldn’t consider. Many of these loans are completed via a third-party broker or agent.
Naturally, this flexible approach on the part of the challenger bank is reflected in the cost of the loan itself, which may be more expensive than the equivalent with a high-street bank — but on the other hand, many of the challengers’ customers aren’t eligible for funding with the mainstream providers, so it becomes a moot point.
Direct Lenders / Independent Lending
By and large, the providers we’ve looked at so far aren’t lending their own money. The challengers are often backed by investors, while the crowdfunding and peer-to-peer platforms aren’t funding businesses themselves at all. However, alternative finance also includes direct lenders, who lend from their own funds and therefore have more control over the details of their lending criteria.
Some of the direct lenders focus on innovation, using technology to make semi-automated credit decisions. With these technology-focused lenders, businesses can find out if they’re eligible in minutes, and have money in their account within hours if accepted.
Other direct lenders are taking a more customer service focused approach, with face to face sales teams and relationship managers that can take a bespoke view of applicants. For these reasons, direct lenders are often able to make deals happen that others would struggle with.
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