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Everything You Need To Know About Business Loans For Your Trade Business

Rhino Trade Insurance 29 September 2023

If you're a tradesperson in the UK, there’s likely to come a time when you need access to capital for your business. Whether you're a plumber, electrician, builder, or any other skilled trade business, there are times when you need funds to invest in new equipment, hire additional staff, or expand your operations. In such situations, a business loan can be a lifeline for your company.

However, finding the right business loan tailored to the unique needs of tradesmen and women can be challenging. The lending landscape is vast and diverse, with numerous lenders offering various loan products. To help you navigate this complex land, we've put together a post of the best UK business loans for tradesmen and women in 2023.

The Importance of Choosing the Right Business Loan

Before diving into the best business loans available, let’s understand why choosing the right business loan is important for tradespeople.

Flexible Funding: 

A well-suited business loan offers flexibility in how you can use the funds. This is especially important for tradesmen and women who may need to cover various expenses, such as purchasing materials, hiring skilled labour, or marketing their services.

Competitive Interest Rates: 

Interest rates influence the cost of borrowing. Lower rates mean more affordable repayments and a reduced financial burden on your business, whereas higher rates do the opposite.

Repayment Terms: 

The ideal business loan should offer repayment terms that align with your cash flow. Tradespeople often face fluctuations across the year with income, so having a loan with adaptable repayment options can be a game-changer.

Quick Access to Funds: 

In the trade world, timing is everything. Whether it's an urgent equipment replacement or a time-sensitive project, having quick access to funds can make all the difference.

Boosting Growth: 

The right business loan should be a financial lifeline and a tool for growth. It can help you seize opportunities, expand your services, or invest in technologies that give you a competitive edge.

Now that we understand why choosing the right business loan is vital, let's explore the top business loan options available in the UK for tradesmen and women in 2023.

Business Loans

  • Loan Amount: Varies by lender, typically from £10,000 to £500,000
  • Interest Rate: Fixed or variable, depending on the lender
  • Repayment Term: Typically 1 to 5 years

Business term loans are a tried-and-true financing option for tradespeople. These loans offer flexibility and can be tailored to suit your business's specific needs.

Pros:

  • Customisable loan amounts to fit your requirements.
  • Competitive interest rates, especially for borrowers with strong credit profiles.
  • Repayment terms can be adjusted to match your cash flow.
  • Right for various business purposes, from purchasing equipment to expanding operations.

Cons:

  • Longer approval times compared to some other financing options.
  • It may require collateral or a personal guarantee, depending on the lender.

Best for established trade businesses with a clear plan for how they will use the funds and the ability to meet regular repayments.

Asset Finance

  • Loan Amount: Varies based on the value of the asset being financed
  • Interest Rate: Typically fixed, based on the asset and lender
  • Repayment Term: Typically 1 to 5 years, matching the asset's expected useful life

Asset finance allows you to secure a loan using your business assets, such as machinery or vehicles, as collateral.

Pros:

  • Competitive interest rates since the asset secures the loan.
  • Enables you to acquire essential equipment or vehicles without a significant upfront cost.

Cons:

  • Asset loss possibility in the event of loan default.
  • Limited to businesses with valuable assets to use as collateral.

Best for trade businesses looking to purchase or upgrade equipment, machinery, or vehicles without tying up their working capital.

Invoice Financing

  • Loan Amount: Typically, up to 90% of the invoice value
  • Interest Rate: Varies by lender
  • Repayment Term: Repaid when the customer settles the invoice

Invoice financing lets you access cash tied up in unpaid invoices.

Pros:

  • Immediate access to cash tied up in overdue invoices.
  • Helps maintain steady cash flow, especially if clients have extended payment terms.
  • Approval is often based on the creditworthiness of your customers rather than your business.

Cons:

  • Fees can add up, particularly if invoices take a long time to be settled.
  • May require you to relinquish control of your invoicing process to the financing company.

Best for trade businesses with outstanding invoices and a need for immediate cash flow.

Government Grants and Schemes

  • Loan Amount: Varies by grant or scheme
  • Interest Rate: Typically low-interest or interest-free
  • Repayment Term: Varies by grant or scheme

The UK government offers grants and schemes to support businesses in different sectors, including trades.

Pros:

  • Low or zero-interest financing options that can significantly reduce the cost of borrowing.
  • Depending on the grant or scheme, funds may not need to be repaid.
  • Government support adds credibility to your business.

Cons:

  • Limited availability and eligibility criteria.
  • Application processes can be competitive and time-consuming.

Best for trade businesses that meet the criteria for government grants or schemes, as they offer some of the most advantageous financing terms around.

Online Business Loans

  • Loan Amount: Varies by lender, typically up to £500,000
  • Interest Rate: Competitive rates based on your creditworthiness
  • Repayment Term: Typically 1 to 5 years

Online lenders have become very popular in recent years and provide a quick and easy option to get business capital.

Pros:

  • Quick application and approval processes, often with same-day decisions.
  • Competitive interest rates and flexible terms.
  • Streamlined online application processes.

Cons:

  • Rates can be higher than traditional banks for businesses with lower credit scores.
  • Some online lenders may have less transparent terms and fees.

Best for tradespeople looking for a fast and convenient way to secure funding with competitive rates and flexible terms.

How to Choose the Right Business Loan for Your Trades Business

Now that we've explored the top business loan options for tradesmen and women, let’s consider how to choose the right one for your needs. Here are some steps to help you make an informed decision:

Assess Your Needs: 

Determine the exact purpose of the loan and how much capital you require. This will guide you in selecting the loan type and amount.

Review Your Financials: 

Evaluate your business's financial health, including credit score, cash flow, and debt obligations. This will impact the loan terms and interest rates available to you.

Compare Rates and Terms: 

Get info from multiple lenders to compare interest rates, repayment terms, and associated fees. Consider both the total cost of the loan and the monthly payments.

Check Eligibility: 

Ensure you meet the eligibility of your chosen lender. Some loans may have specific requirements regarding business age, revenue, and credit history.

Read the Fine Print: 

Carefully review the loan agreement, including any hidden fees or penalties. Understand the terms and conditions before committing.

Consider Collateral: 

If your business has valuable assets, such as equipment or property, consider whether you're comfortable using them as collateral for a secured loan.

Seek Expert Advice: 

If you're uncertain about which loan is best for your business, consult a financial advisor or accountant specialising in small business finance.

Plan for Repayment: 

Develop a clear plan for repaying the loan, taking into account your business's cash flow patterns and the impact of the loan on your finances.

Why Opt For Cover With Rhino Trade Insurance?

Securing the right business loan for your trade business is critical in ensuring its growth and success. In 2023, UK tradesmen and women have a diverse range of financing options at their disposal, from government-backed schemes to innovative online lenders. By carefully assessing your business's needs, financial situation, and eligibility, you can choose the loan that best aligns with your goals and sets you on a path to prosperity.

While offering specific insurance options for practically every trade, we work hard to keep our rates competitive. We can protect a variety of tradespeople, including electricians, gardeners, plumbers, joiners and locksmiths. Don't see your trade? Don't worry; we most likely cover it. 

Why not give our UK team a call? They can help you set everything up right away so you can focus on your work. Call 0116 243 7904, or if you want to handle things independently, complete a quote request online here.


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