by Benjamin-Harry Gladwin
Most of us aren’t blessed with bank accounts in the darkest of blacks, so it is inevitable that at some point in your growing empire you may need to have some extra money to speed up your expansion. Small business loans from banks are one of many ways to do this and seem appealing at first; We have trawled away through the fine print of Santander and Barcley’s terms and conditions to give you five things you should be aware of before starting this process.
1. Your personal credit may be checked and you’ll have to secure it too.
This may sound a bit silly, but this isn’t a business loan as such. If your company is in its infancy it doesn’t have a credit history; so these loans are checked against you personally. It is important that you know this beforehand because it could ultimately affect your credit in the case of a rejected application or defaulting on the loan.
Loans of this kind have to be secured against an item of high value; meaning that if you don’t own a house, know someone who does who will agree to let you use their house, or have something worth a considerable amount you may be hindered in your application.
2. If you do default it may not be the end of the world.
If you enter a loan agreement with your personal bank and your business account has insufficient funds to pay the entirety of your monthly payment, your bank has the right to recover the rest of the funds from the available balance on your other accounts. This may sound a bit doom and gloom but it can give you more time to get that big order in or get your cash flow into order without it being detrimental to your business.
Plan what you’re going to use the money for to the letter. This will help you avoid being in this situation because you know where the money is going and plan how the money will help you gain profit over the value of the loan and interest.
3. You can cancel the loan.
Your consumer rights extend to loans too, meaning you have 14 days after the money is deposited into your account to return and cancel the loan without incurring interest. Now, if you’ve received the money and then you decide you don’t want or need the cash any more you might feel like after going through the entire process that you’ve wasted time; it is better to have wasted time then have to pay interest on money that you don’t need. See it as a fail-safe, it is a lot of money and you should know your rights in regards to it.
4. Early repayment is possible, but…
You may incur charges for breaking the repayment schedule. You should read the small print properly and know what may happen in this scenario; it may be more cost effective to wait out the life of the loan rather than pay it back early- which feels a bit counter intuitive but considering that these loans can last up to ten years it is in your interest that you know the in’s and out’s of what you’ve agreed to.
Do consider finding a lawyer or explore free legal services to help you understand your contracts. Banks and lending services will help to a point but ultimately, like yourself, they are selling their products in search of profit and may not have your best interests at heart.
5. Loans shouldn’t be your first port of call.
There are many different avenues of funding; government grants and subsidised council schemes may be more suited to you. Loans shouldn’t be something you take out flippantly. You don’t have to do it alone, and you should look into collaborating with other individuals looking to achieve similar goals to you it may not work but it also might be the best decision you ever made.
Photo from Pexels.