The Different Types of UK Loans for Businesses

Loans are simple in essence. They are sums of money given from one party to another that must be paid back over time. There is often a span of time in which to repay and installments that are repaid.

Interest accrues on the loan and is what allows the lender to benefit from the agreement. However, there are a few different kinds of loans; each of these types of loans will result in different repayment terms and rates for the borrower:


Short Term Loans
A short term loan is one that is taken out and repaid within 1 year. This can include everything from a simple line of credit to a loan on a paycheck or an accounts receivable loan. These are the lowest risk loans because they are the smallest amounts - they also tend to have slightly higher interest rates because of their quick repayment times, but less interest will accrue as well.

Long Term Loans
Long term loans refer to any loan that takes longer than a year to repay. Many times, these loans can take as long as 20 years to mature, as is the case of a home mortgage loan. Many times, these loans are used for large, capital expenditures such as vehicles, construction, or furnishing. When a business is trying to survive a downward cycle, they can also help supplement income and boost production.

Credit Cards
Credit cards are likely the most common form of loan in the UK, as demonstrated by the sheer volume of people who use them on a daily basis. They work on a revolving basis with the line of credit adjusting to match the amount borrowed. Interest rates can vary greatly, from as low as 2.9% to as high as 30% annually depending on the borrower's current credit score.

Line of Credit
A line of credit is slightly different than a credit card as it will often be limited in scope. The borrower usually approaches a line of credit similar to how they would approach a regular loan but is given more leeway as to how much is borrowed. The terms are much shorter than a loan and the repayment is usually a bit easier.

Letter of Credit
In this case, the bank will act as a stand in between the borrower and lender. It will pay the money to the lender if the conditions of the loan are taken care of; usually this is best used for international business transactions.

Regardless of your business situation, there are plenty of options available on the market to get your business up and running with a business loan . Whether you need a quick 90 day loan or a long term loan for new equipment, the money is available if you know where to look.


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