How To Expand Your SME With An Interest-Only Business Loan

Expanding your business can feel like a long, hard slog with no signs of a reprieve in sight. Whilst it is true that growing a business tends to take a huge amount of determination, commitment and time in 99.9% of cases, there are ways in which your SME can get ahead.

One of the biggest reasons why businesses fail to expand, especially start ups and SMEs, is that they simply lack having the finances behind them to support those growth aspirations.

There are various elements involved with expanding a business successfully, but behind every success story will be the one truly defining factor – money.

There is a lot of truth to the phrase “you need money to make money” and that is because everything gets a little easier when there are funds to finance each important step along the way.

A lot of businesses in the UK are reluctant to borrow additional funding and that is even more so currently in the lead up to Brexit.

Earlier in the year, Nucleus conducted research on the attitudes of SMEs towards borrowing. We surveyed 500 small and medium sized businesses and found that in the last 12 months, businesses have been reluctant to take out funding, with many SMEs applying for external finance but changing their mind at the very last minute.

In recent years, there have been suggestions that businesses are not borrowing because they are not able to obtain the funding they require. The reluctance of banks to lend to newer businesses and those who are not asset heavy has meant that it has always been more difficult for SMEs to get access to viable commercial loans.

However, with the risk-adverse nature of banks following the banking crisis of 2008 also came the rise of the alternative lending landscape. Businesses have more options for additional funding than ever before and that is in part due to new government laws that mean traditional banks are obliged to refer small businesses to other finance providers.

There are plenty of solutions available to businesses and we have discussed some of the options in previous blogs, such as invoice finance and a business cash advance. In today’s blog, we are outlining exactly how an interest free loan can enable your business to meet growth targets just in time for the new year.

What Is An Interest Only Business Loan?  

Unsurprisingly, this type of loan does exactly what it says on the tin. With this type of commercial loan, businesses are able to borrow money to spend in the here and now, yet are only required to pay back an agreed figure which surmounts to interest every month for the duration of the term length, with a few options available upon reaching that deadline.

Companies can either refinance their interest only loan into a term loan or settle the borrowed capital plus one month’s interest at the end of the fixed term.

Interest only business loans differ from the ‘standard’ set up most SMEs are used to seeing and the minimum monthly repayments allow smaller businesses the breathing space they desperately need during stages of growth and expansion.

The Nucleus interest only loan can be used for start up capital, making it the perfect funding solution for those with a fantastic business idea and little to no cash to make it all happen. All we require is a cash flow forecast and a well written business plan.

Don’t have either? Don’t worry, our helpful team have got you covered. Take a moment to read our blog on the 7 Key Things You Need To Include On Your Start Up Business Plan and once you’re done, read our piece on How To Do Cash Flow Forecasting where we walk you through the process, hopefully making launching your start up that little bit easier in times of hardship.

Why Is An Interest Only Business Loan Best For Growing My SME? 

For SMEs hoping to grow, achieving targets and expansion goals can be almost impossible without the sufficient funding available. There is no avoiding the fact that growth demands money – more employees, more marketing, more products and services on offer and perhaps even a bigger premises.

For businesses that don’t have huge cash reserves behind them to support expansion plans, an interest only business loan could be the perfect solution. Once the paperwork and property valuation is out of the way, your business would receive the entire sum of money and better yet, it can be spent on any business related purpose. You won’t be restricted on what you can spend the money on as we understand that you know your SME and its needs better than anyone.

You will be able to use the loan as working capital to allow you to make all the changes and improvements necessary to fuel expansion plans. Your business will not have to part with a percentage of profits each month, nor will it have to bear the brunt of substantial monthly payments regardless of its profitability.

With no requirement to pay back large portions of the loan on a monthly basis, your business will have a chance at truly thriving and with terms lasting up to five years, your business will be given an adequate chance to flourish well before the total loan amount is due to be paid back.

For SMEs that are desperate to expand in order to properly capitalise on the market demand of their industry, an interest free business loan might just be the answer they have been looking for.

With loan amounts ranging from £25k to £20m, your SME will likely find exactly what it needs in terms of commercial finance with our interest only funding product.

For more small business advice and tips, read our related posts below. If you are experiencing cash flow challenges or want to realise your business growth plans, get in touch with our team of Funding Specialists today on 020 7839 9451 or email [email protected].