From a lender’s perspective, the market for small business loans is big both in the UK and in all of Scandinavia. Sweden, for example, has many similarities with the UK market and offers multiple business loans to both small and large businesses, as well as start-ups, across the country.
More similarities between the Swedish market and that of the UK, is how the offers are structured as well as in the rules and regulations. We will touch upon some of these aspects further in this article.
What is a business loan?
First, it is important to define what a business loan is. In short terms it is an agreement where the lender gives your business money, and in return you agree to pay it back. The business loan can vary in amount, depending on what the money will be used for, or invested in.
In both Sweden and the UK, the loans can either be secured or unsecured.
- Secured: this means that the security for the loan will be one of the businesses assets like machinery or property. If the loan cannot be repaid, the lender will simply collect the asset instead.
- Unsecured: if the loan is unsecured, there is no asset to be used as security. Instead, you as a business owner might be personally liable if the loan is not repaid as agreed upon.
The benefits and risks of business loans
As mentioned previously, a business loan can create many good opportunities for the business. A business that has the goal of increasing capacity (whether in staff or production) the money can be used for investing in property and hiring staff. The loans can also be used to increase cash flow.
However, as with all loans and investments, they do come with some risks. The risks entailed with a business loan are important to discuss when planning a potential business loan. For a small business, it might be even more important, as they usually have a higher risk, with no assets to secure the loan.
Personal guarantee/liability
If you chose an unsecured loan, there is a so-called director’s personal guarantee. This means that you, as the director, commit to repay the loan in case the business itself cannot. For a small business, it is a larger risk as you are personally liable for all the debts.
Loss of assets
If the loan is secured by an asset, a risk if the loan is not paid on time, is that the asset might be lost. Since the assets usually used for business loans are machinery and property, they are assets that are vital to the business itself.
Brokers
By using a business loan broker, you as a business owner can get help finding a cheaper loan. A business loan broker like Creddo in the Swedish market, lets you create an application on their site – which is then sent to multiple lenders. If your application is accepted by the lenders, the business will receive multiple loan offers.
Charges
Charges might be added if a payment is not received in time. It might also happen that multiple late payments result in difficulties when applying for future loans.
It is important to put both benefits and risks in comparison to each other when planning a business loan. For you and your business’ security, it is also of importance to make sure that the lender is authorized by either the Prudential Regulation Authority or the Financial Conduct Authority. Therefore, research and business plans are to be recommended before deciding.