If your business needs an injection of cash, you’re probably considering a business loan of some kind. But knowing how much you can borrow – and from where – is not necessarily straightforward. Here’s everything you need to know about business financing eligibility:
Factors Affecting Business Borrowing
The UK is home to dozens of different business financing products, from dozens of different lenders, and right up front it’s important to know that all this variety impacts loan eligibility and loan amounts. Just because one lender uses certain metrics to determine how much of a loan your business can afford, does not mean that another lender uses these same metrics, or will come to the same conclusion. Similarly, different products can provide the same borrower with access to different borrowing amounts.
This is why getting one answer to the question “how much can my business borrow?” is so tricky. The truth is, it depends. But you can reasonably expect that most lenders will assess a business financing application based on:
- Business credit score
- Age/history of business
- Business revenue and profit
- Existing business debts
- Business assets that could be used as collateral for a loan
Larger or longer term loans may also consider your business plan, while newer businesses may be judged partially on the business owner’s personal credit.
The fundamental assessment that any lender will make when considering whether to lend your business money, and how much to lend it, is this: will the business be able to commit to and afford all of the repayments, given its cash flow, history and perceived stability? A lender will only lend an amount that, in their estimation, your business will reasonably be able to repay.
How Type of Financing Affects Borrowing Amount
As mentioned, different types of financing offer different minimum and maximum borrowing amounts. This means that, even for a business with the very best financial credentials, there is a cap on how much it can access via any given product. So if your business needs a specific amount, you must ensure you’re focussing on products that can offer this amount. That’s not to say that your business will necessarily qualify for that amount; but there’s no point in applying for £500,000, even with a perfect credit score and amazing revenue, if the type of loan you apply for has a maximum loan value of £25,000!
Here’s a quick breakdown of the average borrowing ranges of the most common financing types:
- Small business loan (unsecured): anything from £1,000 to £750,000
- Small business loan (secured): anything from £1,000 to £15 million
- Large business loan: up to £100 million
- Business line of credit: anything from £1,000 to £250,000
- Business credit card: anything from £1,000 to £250,000
- Equipment loan: anything from £1,000 to £500,000 (typically secured against the equipment in question)
- Merchant cash advance: anything from £3,000 to £300,000 (typically capped per borrower at 150% of monthly card sales)
- Start-up loan from the government: £500 to £25,000
How Lenders Affect Borrowing Amount
There’s one final complication: lenders all have their own rules and calculations. This is because every lender has their own profit targets, risk assessments, and proprietary models. The result is that they can have their own minimum and maximum borrowing amounts, which may differ from others on the market, and the way they calculate how much they’re willing to lend to any given borrower is bespoke. All of which means that you could apply for the exact same product from two different lenders, using all of the same business data, and you could be offered two different loan amounts.
It’s therefore crucial to be aware of how different lenders operate. For example: traditional high street banks tend to have the strictest, least flexible lending criteria of the whole market. These criteria are because banks are risk-averse, and they result in smaller loan amounts overall, to only the most qualified borrowers. Other lenders, for example online lenders, care less about credit when determining loan amount, and may instead focus solely on cash flow. So it’s possible to borrow more money from an online lender if you have a newer business or bad credit. You may be charged more in interest, but that is the price you pay for access to a loan you might not otherwise be able to get.
Understanding your business’s financial position, before you choose a lender and financing type, will get you closer to borrowing the loan amount you need. It is still necessary for you to make sure your business can afford its loan repayments though, and if a loan’s repayments are untenable, you may need to consider borrowing less than you initially wanted.
A note on business loan calculators:
There are many business loan calculators online, and these are very helpful tools for understanding how loan amount, interest rate and loan term all affect loan repayments. These tools can give you a quick indication of how much any given loan will actually cost. However, they can’t tell you how much your business will be able to borrow. The only way to determine this accurately is to provide a lender with your business’s financial details, so they can make a calculation.
To find out more about quick and convenient access to business funding, talk to Swiftfund today. And check out our blog for more helpful information on the ins-and-outs of business financing.