Small Business Loans, Explained

Starting up a small-to-medium enterprise, or SME, has never been easier. SMEs have become the bedrock of the UK’s professional landscape, constituting a vast majority of operating businesses in the nation and a key portion of employment.

But businesses require funding to operate – funding that is not easily accessed by many entrepreneurs, especially where key expenditures such as property and equipment are concerned. As such, SME loans become a necessary part of business growth.

The Uses for an SME Loan

There are many reasons for which a small business might seek financing from a lending institution. Typically, though, financing and funding is sought for growth purposes. An emerging business might take a loan in order to fund the purchase or rental of physical premises. A loan could also be used for equipment, or the creation of manufacture/supplier pipelines.

An SME with a product ready for launch might utilise an SME loan to finance their push to market, and to expand their advertising budget to guarantee reach. SME loans can also be completely and utterly foundational, giving a management team the opportunity to buy out a business as a small holding company.

In truth, the possibilities are near-endless when it comes to the practical utility of an SME loan; the key factor in any reasoning for such funding tends to be whether or not the results will pay for the loan.

Key Advantages

But why opt for an SME loan? There are other forms of financing available to SMEs, from venture capital solutions to crowdfunding; what makes the SME loan an advantageous option for a growing business?

Each form of financing has its own benefits, that suit specific scenarios. SME loans can be particularly useful in situations where financial injection is required immediately and can have a positive impact on cashflow when it comes to larger up-front purchases. 

SME loans can also be negotiated with longer-term repayment conditions, allowing a business to properly realise and fortify their growth without taking too heavy a hit on monthly repayments. Lastly, and perhaps most importantly, SME loans are accessible to a wide array of business owners – more so than venture capital or angel investment may be.

Getting an SME Loan

There are several avenues to securing an SME loan, with a number of lending institutions offering packages and programmes to new and emerging business. Major banking institutions are the most accessible route to SME loans with reasonable terms, but can also be prohibitively difficult to approach for newer businesses.Alternative lending institutions are emerging with digital platforms and accessibility, and with their own packages that assist younger and smaller businesses without the need for collateral. There are also peer-to-peer platforms, that provide loans from a pool of peer businesses and users.