By Gary Hemming, ABC Finance
The business loan market is changing. Gone are the days of waiting nervously for an appointment with your bank manager only to embark on a lengthy application process for a business loan.
There is a new breed of Business loan lender out there, often powered by fintech systems that are making the business loan process quick and simple.
The different types of business loan
As mentioned above, the market is changing – rapidly.
There are more types of business finance product than ever and its opening up a whole new world of funding for small business owners.
Traditional business loans are still out there, and on the face of it, they’re similar to the loans offered by high street banks.
There are plenty of changes in the background though, with peer to peer lending currently the fastest growing area of financial services.
On top of changes to the way loans are funded, there are new and innovative products such as the business cash advance and standalone revolving credit facilities.
Standalone revolving credit works in a similar way to the traditional overdraft, except that it isn’t attached to your bank account.
Facilities can often be managed online, with funds drawn down into your bank account within hours when needed and repaid whenever suits.
In addition to these unsecured products, there is still a thriving secured business loan market and asset finance and invoice finance are still strong options for releasing funds quickly.
Business loan lenders
There is a wide range of Business loan lenders out there, with new lenders continuing to enter the market.
Each lender has their own criteria, rates, fee structures and way of assessing applications.
High street banks
High street banks tend to be the most well-known lenders and are usually the most conservative.
When approaching a high street bank for a business loan, you can expect a low-interest rate if accepted.
The downside, however, is that you’re likely to have to endure a slow and detailed application process. In addition, strict lending criteria mean that it may be difficult to be approved.
Challenger banks presence in the commercial finance market is growing. Most loans offered by challenger banks tend to be secured against property, although some will consider unsecured lending.
You can expect a challenger bank to take a more bespoke view of your circumstances rather than working to strict ‘tick box’ criteria.
Challenger banks will usually charge more than high street lenders but can be more flexible in the approach.
Peer to peer & online lenders
When it comes to business loans, the peer to peer lenders and those operating through online platforms are taking the market by storm.
Lending tends to be flexible, and application processes fast and simple, usually online.
Some lenders are even offering very low rate loans, as low as 1.9% currently, although only a small percentage of applicants will achieve such a low rate.
The downside to online lenders is that you lose a lot of the face to face relationship that can be built with a bank (although some would say that even banks are failing to sustain personal relationships these days).
In addition, although you may be more likely to be approved by peer to peer and online only lenders, if your application is considered higher risk, you may have to pay a premium for your money.
Key points to consider before taking on a new business loan
When looking to take out finance for your business, it’s important that you consider your options in detail before proceeding.
Failure to be clear in your position before starting out can lead to you selecting the wrong product and losing out financially.
How long the money is needed for
Before selecting a product, decide how long you will need the money for, and whether it’s a one-off requirement.
If you will need to borrow each month, a revolving credit product may be more suitable than a traditional business loan.
Your monthly budget
Set a monthly budget before speaking to anybody. You should be clear on the maximum affordable repayment before starting.
Interest rates and total cost
Some products offer very low-interest rates but load your application with fees. This increases the total cost of borrowing and may mean that a higher rate product actually works out cheaper.
To avoid this situation, always consider the total cost of borrowing as well as just the headline rate charged.
Are you likely to repay the loan early?
If you’re likely to repay the loan early, it may be a good idea to look for a product with no early repayment charges (otherwise known as penalties).
Triggering an early repayment charge can significantly add to the cost of borrowing and should be considered upfront.
The documents needed to apply
Always endure you have some basic documents ready to go before beginning an application. Most lenders will simply place your application on hold while they wait for your documents, so it makes sense to have them ready upfront to avoid delays.
Commonly requested documents include:
- Proof of ID and residency
- Latest 2 years trading accounts
- 3-6 months Business bank statements
Using a broker vs direct to lender
As there are so many new business loan lenders out there, it can be difficult to get quotes from them all.
A good business loan broker will be able to work with you to find the best deal and most don’t charge a fee for their service.
If you’d like to go it alone, it’s best to create a plan of which lenders you would like to speak to and then work through them one by one.
Whichever route you choose, it’s important that you search for the best deal as the cost between lenders can be significant.
Sunak warns of bill to be paid to tackle Britain’s ‘exposed’ finances – FT
(Reuters) – British finance minister Rishi Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.
Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”
UK exposure to a rise of one percentage point across all interest rates was 25 billion pounds ($34.83 billion) a year to the government’s cost of servicing its debt, Sunak told FT.
“That (is) why I talk about leveling with people about the public finances (challenges) and our plans to address them,” he said.
The government has already spent more than 280 billion pounds in coronavirus relief and tax cuts this year, and his March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown.
He is also expected to announce a new mortgage scheme targeted at people with small deposits, the UK’s Treasury announced late on Friday.
Additionally, the government will also announce a new 100 million pound task force to crack-down on COVID-19 fraudsters exploiting government support schemes, it said.
(Reporting by Bhargav Acharya in Bengaluru; Editing by Leslie Adler and Cynthia Osterman)
G20 promises no let-up in stimulus, sees tax deal by summer
By Gavin Jones and Jan Strupczewski
ROME/BRUSSELS (Reuters) – The world’s financial leaders agreed on Friday to maintain expansionary policies to help economies survive the effects of COVID-19, and committed to a more multilateral approach to the twin coronavirus and economic crises.
The Italian presidency of the G20 group of the world’s top economies said the gathering of finance chiefs had pledged to work more closely to accelerate a still fragile and uneven recovery.
“We agreed that any premature withdrawal of fiscal and monetary support should be avoided,” Daniele Franco, Italy’s finance minister, told a news conference after the videolinked meeting held by the G20 finance ministers and central bankers.
The United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies through lockdowns.
But despite the large sums, problems with the global rollout of vaccines and the emergence of new coronavirus variants mean the future path of the recovery remains uncertain.
The G20 is “committed to scaling up international coordination to tackle current global challenges by adopting a stronger multilateral approach and focusing on a set of core priorities,” the Italian presidency said in a statement.
The meeting was the first since Joe Biden – who pledged to rebuild U.S. cooperation in international bodies – U.S. president, and significant progress appeared to have been made on the thorny issue of taxation of multinational companies, particularly web giants like Google, Amazon and Facebook.
U.S. Treasury Secretary Janet Yellen told the G20 Washington had dropped the Trump administration’s proposal to let some companies opt out of new global digital tax rules, raising hopes for an agreement by summer.
“GIANT STEP FORWARD”
The move was hailed as a major breakthrough by Germany’s Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire.
Scholz said Yellen told the G20 officials that Washington also planned to reform U.S. minimum tax regulations in line with an OECD proposal for a global effective minimum tax.
“This is a giant step forward,” Scholz said.
Italy’s Franco said the new U.S. stance should pave the way to an overarching deal on taxation of multinationals at a G20 meeting of finance chiefs in Venice in July.
The G20 also discussed how to help the world’s poorest countries, whose economies are being disproportionately hit by the crisis.
On this front there was broad support for boosting the capital of the International Monetary Fund to help it provide more loans, but no concrete numbers were proposed.
To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by Trump.
“There was no discussion on specific amounts of SDRs,” Franco said, adding that the issue would be looked at again on the basis of a proposal prepared by the IMF for April.
While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.
The recovery is fragile elsewhere too. Factory activity in China grew at the slowest pace in five months in January, and in Japan fourth quarter growth slowed from the previous quarter.
Some countries had expressed hopes the G20 may extend a suspension of debt servicing costs for the poorest countries beyond June, but no decision was taken.
The issue will be discussed at the next meeting, Franco said.
(Additional reporting by Andrea Shalal in Washington Michael Nienaber in Berlin and Crispian Balmer in Rome; editing by John Stonestreet)
Bank of England’s Haldane says inflation “tiger” is prowling
By Andy Bruce and David Milliken
LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, potentially requiring the BoE to take action.
In a clear break from other members of the Monetary Policy Committee (MPC) who are more relaxed about the outlook for consumer prices, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.
“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online. “But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”
Haldane’s comments prompted British government bond prices to fall to their lowest level in almost a year and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation or BoE rates.
“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.
He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures.
Haldane also cited a glut of savings built by businesses and households during the pandemic that could be unleashed in the form of higher spending, as well as the government’s extensive fiscal response to the pandemic and other factors.
Disinflationary forces could return if risks from COVID-19 or other sources proved more persistent than expected, he said.
But in Haldane’s judgement, inflation risked overshooting the BoE’s 2% target for a sustained period – in contrast to its official forecasts published early this month that showed only a very small overshoot in 2022 and early 2023.
Haldane’s comments put him at the most hawkish end among the nine members of the MPC.
Deputy Governor Dave Ramsden on Friday said risks to UK inflation were broadly balanced.
“I see inflation expectations – whatever measure you look at – well anchored,” Ramsden said following a speech given online, echoing comments from fellow deputy governor Ben Broadbent on Wednesday.
(Editing by Larry King and John Stonestreet)
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