Business Loan Q&A - Your Questions, Answered

Join the Esme team as we answer the most common business loan related questions asked by you – including what a business loan is, how repayments really work and how long it can take to get approved for a business loan.
Business Loan Q&A - Your Questions, Answered

Many businesses will come to a point where finance is required to either resolve issues or invest in the future, and a business loan could be an accessible and business savvy solution.

What is a business loan?

A business loan is a sum of money that is lent to a business to be used for business purposes. A business loan can usually be borrowed from banks, investors or online lenders like Esme. The loan is then repaid by the business over an agreed period of time.

Why do businesses need business loans?

Businesses take out loans for a variety of reasons, including managing cashflow, funding an expansion, buying inventory or purchasing assets.

What can I use a business loan for?

What you spend your business loan on depends on the type of loan you choose. For example, if you choose an asset finance loan, you can only spend the loan on a physical asset for your business – like a vehicle.

Most business loans, including Esme’s, can be spent on any business related matters you choose. The only thing we don’t provide loans for is purchasing property and equity in other businesses.

You can find out more about the type of business loans available on our how get a business loan blog post.

What is a secured loan?

A secured loan is when you provide an asset as security; this includes property, vehicles, or even stocks and shares. This is in case the business is unable to pay the loan back to the lender. If the loan is not repaid by the business, the asset would be taken and sold in order to cover the funds the lender has lost. What is an unsecured loan? An unsecured loan is when you do not need to provide an asset as security. This type of loan is useful to smaller businesses who may not have an asset or be unwilling to provide an asset as security, however, the lender will usually require a director’s guarantor in this case.

What is a personal guarantor?

A director’s guarantor is when a company’s director is liable for repaying the loan in case the business is unable to. A business loan lender will often require a director’s guarantor as security for an unsecured loan.

Here at Esme we don’t take security over an asset, however we will ask for a personal guarantee from a company director, which means they will be responsible for paying the loan in case the business is unable to.

How do you qualify for a business loan?

Depending on the business loan and lender you choose, there are eligibility requirements that you must meet in order to qualify for a loan with the lender. The lender will also most likely check your business’ credit score which is held by credit reference agencies.

To apply for a business loan at Esme, you must meet the following requirements:

  • Over 18 years old
  • A UK resident
  • Have been actively trading for at least 18 months
  • Registered with Companies House for 18 months (Limited Company only)
  • Over £15k turnover
  • A sole trader or a director of a UK Limited Company
  • If you are a sole trader you must also have a business account

Every lender will have different eligibility requirements therefore it is always a good idea to check them before applying. The Business Credit Scoring Guide will also help you understand how business finance decisions are made and the various factors considered.

How hard is it to get a small business loan?

How easy or hard it is to get a small business loan very much depends on your business and how much it makes. It’s always worth looking at the eligibility requirements for each lender you’re interested in applying with to ensure you meet their requirement and increase your likelihood of getting accepted.

If a lender does not display their eligibility requirements or they do not have any on their website – you may be up against a fraudster. You can find out more information about finding a genuine lender and safely applying for a loan on our blog.

How does a business loan repayment work?

Here at Esme, you will agree the amount and a repayment period that works for your business and its cash flow before receiving the loan – you can see exactly how much you’ll be paying back each month over the time period you have chosen. Repayments are then made one month after you accept your loan and paid either by Direct Debit or Visa Business Debit card. Your loan repayments will automatically come out of the assigned account according to your loan repayment schedule which you can see anytime, anywhere on your Esme online account. To top it off, you are also able to make early repayments with no fees! However, not all lenders will operate like this and therefore it’s always a good idea to check how the repayments work with the lender before accepting the loan to ensure it works for your business.

How long does a business loan take to get approved?

Some bank lenders may require more information and have a more time consuming application processes, while online lenders are usually quicker with easier application forms. It is always best looking at the application process for each prospective lender, especially if the reason you’re looking for a loan is time sensitive. Here at Esme, our application process is just 10 minutes and if your loan gets approved, the money could be with you within an hour.

How much can I get?

Each business loan lender will have a minimum and maximum loan they are able to lend to business owners. However, the amount you are able to lend also comes down to the repayment period you choose and how much you are looking to borrow. Any lender will always make sure that the amount you would like to borrow and the repayment period chosen is realistic and manageable for your business. Here at Esme, we offer business loans from £10,000 to £250,000 for limited companies and loans from £25,500 to £250,000 for sole traders.

How to apply for a business loan?

If you meet our eligibility requirements you can get a business loan by applying online with our 10 minute application form. You can find out more about how to apply for an Esme Loan on our website. Other business loan lenders may have a different application process which include either applying online or in person. Therefore it’s always best to check before you apply to ensure it suits your business.

How long can you get a business loan for?

The length of your repayment period depends on the loan and lender you choose – short term loans can be as little as 1 month whereas some long term business loans can be up to 25 years. At Esme, you can choose a repayment period between 1 to 5 years.

How to calculate working capital

Calculating your working capital is simple - just take your current liabilities, and subtract them from your current assets. For example, if your business’s assets total is £200,000, and your current debts and liabilities together are £175,000, then you’ll have £25,000 of working capital to use. You can find out more about how to improve your working capital and how to work out your working capital ratio on our blog.

How can I get a business loan with no credit?

A business credit check is part of the process of checking how likely and reliable you will be when repaying your loan. If your business doesn’t have a good credit score, you could work on improving it before you apply to increase the chance of your business being accepted for a loan. You can find out more about how to check and improve your business’ credit score on our blog.

How does the economy affect businesses?

The economy plays a huge part in the success or failure of most businesses around the world. This could include changes in interest rates, business tax inflation and general inflation where everyday items, like food, can increase in price. If the economy is not doing well and as a result people are wanting to spend less money, your business could be faced with a downturn in profits. It’s important to monitor the economy to prepare your business for any changes it may be faced with.

How can Esme help?

If you have any questions that haven’t been answered in this post, why not get in touch with us or give us a call. Our team will be happy to answer any questions you may have about getting a business loan with Esme.