A bank loan in the form of cash, that you borrow and repay over an agreed length of time. As well as repaying the amount you’ve borrowed, you normally have to pay interest on a loan. The amount will depend on:
- how long you need the loan for
- how much you borrow
- whether the loan is ‘secured’ – eg if you own your home and agree to transfer ownership to the loan provider if you don’t keep up your payments
- other factors, like the Bank of England base rate
The interest rate may be:
- fixed, so it won’t change for the length of the loan
- variable, so it will change with the Bank of England base rate or the bank’s cost of borrowing
Loans are generally suitable for:
- paying for assets – eg vehicles or computers
- start-up capital
- instances where the amount of money you need won’t change
It’s not a good idea to take out a loan for ongoing expenses – you might find it difficult to keep up repayments.
- loans aren’t very flexible – eg you may have to pay charges if you repay early
- you might struggle to meet monthly payments if your customers don’t pay you
- if your loan is secured against your personal property or assets (eg your home) you could lose them if you don’t keep up the payments
- the cost of repayments for variable rate loans can change, making it harder to plan your finances
What banks look for when lending money to businesses.
The British Business bank is a government funded organisation that helps link businesses at all stages with commercial banks.