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18 Jan 2024

What types of business loans are available for SMEs?

Anna Dearden
Home Sector Specialist

Navigating the world of business financing can be daunting for small and medium-sized enterprises (SMEs). Choosing and comparing business loans is more than a financial decision — it's a step towards your enterprise's growth and success. 

At SpotDif, we understand this journey's importance and are dedicated to simplifying it. Join us as we explore the ins and outs of SME financing, ensuring your business strides confidently into its next chapter with the ideal financial support.

What are small business loans?

Small business loans are essential tools for entrepreneurs aiming to start or grow their enterprises. They offer the financial support needed to cover various business expenses, from equipment purchases to operational costs — all so you can get up and running effectively. Understanding these loans means recognising their types, terms, interest rates, and repayment schedules, which vary greatly. Crucially, selecting the right loan hinges on aligning it with your business goals and financial capacity. 

We’ve put together a comprehensive overview of these SME loan options, so you can navigate through your choices with ease. For more detailed information and a range of loan options tailored to your needs, visit our Business Loans page.

Types of loans available for SMEs

For SMEs, choosing the right type of loan is pivotal for your business growth and sustainability. There are various loan options available, each with its unique features and benefits — all of which are specifically designed to meet the diverse needs of SMEs such as your own.

SME Loans

SME loans provide tailored financial solutions to a diverse range of businesses. These loans are lifelines for startups, enabling them to cover initial costs and kickstart their operations so they can hit the ground running.

Established SMEs can also benefit from this by accessing capital for expansion, technological upgrades, and day-to-day expenses, amongst many other necessities. SME loans are especially valuable to businesses with limited collateral or shorter trading histories, offering accessible qualification criteria. The streamlined application process ensures swift access to funds, making them a practical choice for timely financial support. 

What are the benefits of SME loans?

Flexible terms: These loans often come with customisable repayment options, catering to the varying cash flow patterns of SMEs.

Accessible funding: They provide easier access to funds, often with more lenient requirements than traditional corporate loans.

Growth support: SME loans can be instrumental in supporting business expansion, equipment purchase, or even in bridging temporary financial gaps.

Small business loans for bad credit

Small business loans for bad credit are designed for enterprises that may not have an ideal credit history but still require funding. These loans are crucial for businesses unable to secure traditional financing due to their poor credit scores.

What are the benefits of business loans for bad credit?

  • Accessibility: They provide access to funds even with poor credit, helping businesses secure vital resources when they need them most.

  • Improved credit: Responsible repayment can contribute to rebuilding business credit scores over time.

  • Business growth: These loans support expansion, operational stability, and potential profitability for enterprises in need of financial rehabilitation.

For businesses facing credit hurdles, these loans offer a pathway to access necessary funds and continue growing. At SpotDif, we’ll always be here to help by guiding you through these options, ensuring you find a suitable financial solution.

Government-backed small business loans

Government-Backed Small Business Loans are financial lifelines supported by government guarantees. They benefit a wide spectrum of businesses, offering accessible funding solutions when traditional options fall short. Current UK schemes include the Recovery Loan Scheme for post-pandemic recovery and Start-Up Loans for new entrepreneurs.

What are the benefits?

  • Favourable terms: These loans often feature lower interest rates and flexible terms, reducing excess financial burden.

  • Accessibility: They are more accessible to businesses with limited collateral or trading history, broadening funding opportunities.

  • Additional support: Many schemes provide mentoring and advice, enhancing not only financial stability but also sustainable business growth and development.

Merchant cash advances

Merchant cash advances (MCAs) are innovative financing options benefiting businesses in need of quick capital. Unlike traditional loans, MCAs provide funds in exchange for a portion of future credit card sales.

How do they work?

MCAs work by upfronting a lump sum amount, which businesses repay through daily credit card sales. Repayments fluctuate with sales volume, making them appealing to businesses with irregular cash flows.

Who can benefit?

It’s common for retailers, restaurants, and businesses with substantial credit card sales to benefit from MCAs due to their revenue-based repayment structure.

What are the pros and cons compared to traditional loans?

As with anything, there are pros and cons to MCA loans in comparison to traditional loans.

The pros
  • Quick access to funds: MCAs offer speedy funding, crucial for businesses facing urgent financial needs.

  • Flexible repayment options: Repayments adjust with sales, ensuring businesses aren't burdened during slow periods.

  • Easier qualification: Approval is based on sales volume, making MCAs accessible to businesses with weaker credit.

The cons
  • Higher costs: MCAs often come with higher fees and effective interest rates than traditional loans due to their convenience.

  • Daily repayments: The daily repayment structure can be challenging for some businesses to manage.

  • Potential sales impact: As a percentage of daily sales, MCAs can affect profitability.

For a comprehensive understanding of MCAs and how they can benefit your business, visit our Merchant Cash Advance comparison page. Ready to explore this financing option? You can head on over to our Merchant Cash Advance Form now.

Financing your start-up

Starting a business from scratch is an exhilarating journey, but finding the right financing can be an uphill challenge. Fortunately, there are several viable options for securing the necessary funding, so you can turn your business vision into a liveable reality. 

Your options for start-up funding

  • Bootstrapping: You can utilise personal savings and revenue generated by the business to fund your initial operations.

  • Angel investors: You may wish to seek investment from wealthy individuals who provide capital in exchange for equity — also known as angel investors.

  • Venture capital: There’s an option to attract venture capitalists who are interested in investing in high-growth potential start-ups.

  • Crowdfunding: You can easily raise funds from a broad audience via online platforms.

  • Small Business Loans: As we’ve discussed, you can access financing tailored for start-ups, often with favourable terms.

  • Business incubators and accelerators: You can join programs offering funding, mentorship, and resources to early-stage ventures.

How to apply for a small business loan

Now you know a little more about what’s on offer, it’s time to think about the application process itself. Applying for a small business loan can feel daunting. However, with a few key steps, you can streamline the journey. So, where to start?

Assess your financial needs

Determine the amount and type of loan that aligns with your business objectives. By the time you finish reading our guide, you’ll be well-equipped to do this.

Prepare a business plan

Your business plan should outline your business strategy and future financial projections. Loan providers will use this information to assess their grounds for potentially financing your business. Not sure where to start? This business plan template is a super handy resource.

Gather your financial statements

Include documents like balance sheets, income statements, and tax returns. Use this Cash Flow forecast template if you need a bit of guidance.

Check your credit history

Ensure your personal and business credit histories are in good standing, as this can affect your likelihood of receiving funding. 

Complete your loan application

When you’ve chosen your SME loan, make sure that you fill in all of the required details accurately, covering both personal and business financial information.

For additional guidance and to access a user-friendly application form, we like to simplify this process for you. Get started on your business loan application journey by visiting our Business Loan Application Form page.

How to choose the best source of funding for your start-up

When choosing the best source of funding for your business, consider factors like the amount of capital required, business stage, ownership preferences, and industry-specific needs when selecting a funding source. Additionally, seek expert advice and evaluate the long-term implications of each option to make an informed decision that aligns with your start-up's goals and vision.

The best funding sources for small businesses

Discovering the ideal funding sources for small businesses involves a thoughtful comparison of loan types and alternative options. From traditional loans to crowdfunding and angel investors, each choice offers its unique benefits. 

The key is to align your selection with your business's specific needs and aspirations. By exploring these funding avenues and tailoring your choice accordingly, you can secure the financial support that perfectly fits your small business, paving the way forward for growth and success.

Find the best small business loan for you with SpotDif

Finding the right SME loan can be a game-changer for your business's growth. At SpotDif, we understand the significance of this important decision. 

Now, it's your turn to take action. Discover your perfect SME loan by comparing UK business loans and make an informed choice that aligns with your business's unique needs. Your dream business awaits, and we're here to help you make it a reality.

Anna Dearden
Home Sector Specialist
Combining in-depth research with an interest in all things home improvement, I aim to keep SpotDif readers up to date with interior design trends, renewable energy options, and more.
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