Deciding what type of business financing works best for your SME is a tricky process. You need to think about whether you want to give away shares to investors, or whether you’d prefer to hold to complete control of your business.
If you decide on a small business loan, then it’s important to figure out how much you want to borrow, how long you need to repay it, and which lender would best suit you. With loads of options available from traditional lenders, like an HSBC business loan, and from new alternative finance (altfi) providers, research is the key.
Here’s some information about HSBC's business lending and other banks, to save you some of that tiresome legwork. There’s also guidance about altfi lenders to help you weigh up your options.
HSBC business loans
An HSBC business bank account isn’t required for SMEs to apply for a loan, making life a bit more flexible.
The bank’s Small Business Loan is available from £1,000 to £25,000, repaid over a term of between 12 months and 10 years. Instalments are fixed throughout the loan term, so you know when and how much you need to pay back to the bank.
HSBC offers its customers a 3-month repayment holiday at the beginning of the term, giving you a bit of space to get used to refreshed cash flow before you begin repayments. The drawback is that the interest is still charged so future repayments will go up. Plus, there’s an arrangement free of £100 and an early repayment charge.
The fixed or variable Flexible Business Loan is another HSBC product for SMEs. If you’re a limited company, you can borrow £10,000 or more. Sole traders and partnerships can borrow money as long as it’s above £25,000.
Customers can repay monthly or quarterly over a term of between 12 months and 20 years.
Help with loan security
There are other options for bigger loans. For instance, you need to have a turnover under £41 million to apply for the HSBC Enterprise Finance Guarantee Loan, which is for SMEs without sufficient security to use against a secured loan; the government helps cover the lack of security.
If you meet the criteria you could unlock funding ranging from £10,000 to £1.2 million, paid back over a period of between 3 months and 10 years. It’s important to note that there’s a premium that needs to be paid to the Department of Business, Skills and Innovation every quarter, which is on top of fees and charges to due to HSBC.
Accountancy and legal partnership firms can apply for an HSBC capital loan to invest in the practice. It’s a specialist loan requiring repayments each month, quarter, 6 months or year. Funds from £25,001 are available for borrowers, who can repay over an extended term of up to 30 years and up to 1 year into retirement.
Other business funding options
HSBC business banking does offer a range of financial products, however, the criteria may be out of reach for many small businesses. You may need to submit a detailed business plan, have a glowing credit score and be prepared to wait for a lending decision for a few weeks, for example.
Altfi lenders, like Fleximize, typically offer an approval process that’s designed to support smaller enterprises. They know it’s essential that SMEs get the money quickly so they can focus on their building their businesses. And to make things less costly for small businesses, Fleximize doesn't charge arrangement fees or costs for early repayments or payment holidays.
Banks are still lending, but it's difficult, so it’s always worthwhile broadening your funding search to non-traditional lenders.