not as flexible as short-term solutions.making timely loan repayments may improve the business’s credit score.the matching of fixed assets and long-term loans will improve the business’s net asset position on the balance sheet.interest and arrangement fees are normally tax deductible.this type of borrowing usually has a lower rate of interest than more flexible (ie short-term) options.funding is not dependent on giving up a share of the business.the loan amount, length of term, repayment schedules and type of interest rate can be tailored to suit the business, including both cashflow and income generation.suitable for medium- and long-term borrowing needs. Timings will also depend on whether new security, new valuations or legal advice are required. Unsecured loans can take between one to four weeks, whereas secured loans can take between two to three months. The timeframe for arranging a bank loan will vary, depending on the stage of readiness of the business and the type of loan applied for. A business would commonly be charged between £250 and £1,000 per preparation. Fees are likely to apply when a personal asset, such as a jointly owned property, is provided as security.įees to prepare management accounts will vary depending on whether other services are provided bookkeeping, for example, and also on the complexity of the business, its size and the frequency of issue. Legal fees will vary depending on if other services are provided, the complexity of the business, its size and risk to the lender. Therefore, the costs associated with creating and supplying such information should be taken into consideration before entering into a contract with a lender. Information such as current management accounts and/or cashflow projections can be requested on a regular basis, which will be agreed prior to sanctioning. This also applies when loan covenant or other information is required by the lender as a condition of granting the loan and as a condition of continued availability of the loan. The security provided by the borrower can be business assets, guarantees or security or third-party guarantees or security. The amounts and cost of this insurance varies, obviously being dependent on the health history of the insured person.īetter rates can normally be obtained when the bank loan is secured, as the risk to the lender will generally be lower. Insurance, especially key person insurance, may be a condition of the loan application. The most common types of interest rate will be fixed or variable (a margin over base rate or London Interbank Offered Rate ). Interest is charged and will vary depending on risk of default. Fees will vary depending on the complexity of the business, its size and risk. Other fees and charges may be applicable, depending on the type of loan and on the lender.Īrrangement fees are commitment or administration charges payable to the lender to reserve the funds and to cover opening costs. There are five main direct costs that need to be considered:īank loans are normally provided at a cost, which is generally interest on the owed amount. They are generally a quick and straightforward way to secure the funding needed, and are usually provided over a fixed period of time.īank loans can be capital/principal repayment or interest-only and can be structured to meet the business’s needs.įor businesses seeking to purchase business premises, commercial mortgages are widely available and will, in general, offer flexible terms.īank loans can be short term or long term, depending on the purpose of the loan.īank loans are frequently used to finance start-up capital and also for larger, long-term purchases.
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