Businesses in the UK thrive thanks to their access to borrowing – funds raised in this way are applied for a whole host of purposes, from the acquisition of essential assets to the need for immediate working capital to ensure the cashflow necessary to continue trading.
Small and medium sized enterprises (SMEs), which form the backbone of business in the UK, are no exception to this reliance on borrowing and the multinational insurance group Zurich has recently estimated that SMEs are likely to borrow more than £50 billion during the course of 2017.
The average loan is likely to be £41,770, say Zurich, although as many as one in fifty – more than 100,000 SMEs – are expected to seek loans of more than £1 million.
Secured loans
Traditionally, those small business owners took out loans secured against various business assets, such as:
- the commercial premises owned by the SME – accounting for around 12% of loans;
- business equipment, plant and machinery – around 9% of secured loans; and
- equity shares, factoring and invoice discounting – approximately 14%.
The research expresses some concern that an additional 12% of business borrowers used their own personal assets (typically their home) to secure the necessary borrowing, whilst a further 5% pledged security belonging to friends or relatives.
Most worrying of all, however, was that 27% of business borrowers appeared to have no idea what security had been offered to obtain their loan.
Further background on secured lending to businesses is contained in the Bank of England’s Credit Conditions Review for the 1st quarter of 2017
In any of the circumstances described by the Bank of England, the need to secure borrowing against business or personal assets leaves the borrower with some considerable risk. If repayments are not made in accordance with the terms of the loan – if the business runs into financial difficulties, for example – the secured assets are at risk of possession by the lender.
Moreover, secured borrowing such as this is typically arranged with a relatively long repayment term – of 10 or 15 years, for example. This requires a long-term commitment of business resources and available working capital, with repayments that need to be made every month.
Interest on the outstanding balance of the loan is of course payable throughout the entire period. Over the many years which the loan is likely to remain outstanding, therefore, a considerable amount in interest may be due.
Unsecured loans
Although there is a place for secured lending, the more immediate needs of many businesses are likely to be met by unsecured lending – in a way that avoids the long-term commitment and risks of any secured loan.
Because this type of borrowing is entirely unsecured, neither your business assets, nor your personal assets, nor any of your friends or relatives are at any risk, and the typically shorter term of such borrowing means that the repayment of the loan may be more easily managed, with interest repayments accruing with generally less impact on the bottom line of the finances of your business. The interest you repay is for a much shorter period than the average secured loan.
Since the interest rate for an unsecured loan from ourselves at Professions Loans is fixed from the start and remains the same over the entire borrowing period, repayments may be scheduled with ease and with minimum impact on your everyday cashflow management.
The amount you borrow may be tailored to suit your exact needs at the time of arranging the loan and repayment options are sufficiently flexible to be spread over any term from six months to five years.
The borrowed funds may be used in any way that benefits your business – from the acquisition of much-needed assets, to the purchase of alternative premises, from the updating of your IT operating systems to the salaries for newly-engaged staff, from the additional working capital needed to exploit emerging markets to the need to meet VAT or ongoing tax liabilities.
Unsecured loans are also quick and easy to set up – especially when compared to the time usually taken to arrange any form of secured borrowing. Just let us know how much you are looking to borrow and the professional sector in which your business works and we aim to get back to you with our quote within the hour (during normal office hours).
If everything seems then seems to suit your purposes, simply make a formal application with us, we respond with a definite decision within 48 hours, and the requested funds are likely to be with you within just days.
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