A “loan” is a simple word, but it encompasses a multitude of financial options so wide that an inexperienced viewer can easily get lost. Trying to find the right loan can be confusing, and we’d never recommend looking without a specialist who can sort the bewildering array of options into something more palatable.
With so many options, what makes a loan “right” for you? How does a broker decide what finance options are most suitable? There’s no simple answer; no loan or company will be identical, so you can’t set criteria for what works “best”. However, there are a few elements that a broker will look at to determine general areas.
One of the biggest factors in what type of loans are available rests on whether a business secures a loan to property. A secured loan provides a guaranteed source of at least a partial repayment of a loan if the debtor defaults, and lenders understandably present more available options to a business that can provide that collateral. Unsecured loan options are more limited, and sometimes more restricted for the business, so you have to be very sure in your application before going for those options.
2. The size of the business
A SME may be smaller than a “big” business, but that doesn’t necessarily mean they’re tiny. SMES vary hugely in size, which changes their approach to finance. A couple running a shop might be more suited to simpler, more direct finance options where you know exactly where your money comes from. On the other hand, a bigger business may have the resources to manage more complex types of loans that require more careful attention.
3. The size of the loan
Linked to the previous point is how big of a loan you’re looking for. Once again, a different size means different options work better different businesses. This is especially true when you look at loans over £1m. Bigger doesn’t necessarily mean better to a lender, but there’s a whole different set of considerations which make some finance options more suitable than others (imaging trying to raise over £1m through small peer-to-peer lenders!).
4. What you need the loan for
This sounds obvious, but sometimes the obvious factors are the most important. Financing a property development, where you’re likely to draw down on your finance in stages, is very different from an auction purchase, where you need to provide the necessary cash within a limited timeframe. This drastically changes the type of loans and lenders that may be suitable for a project.
A broker won’t make decisions based on just these requirements. However, these are some important ground rules that help a broker narrow down the myriad options available. So, if you approach a broker, make sure you keep these in mind.