Bank loans are still the number one source of lending to small enterprises.
A type of long-term debt finance, loans allow you to borrow an amount of money from the bank for a set period.
The amount you need to repay the bank depends upon the size and duration of the loan, as well as the interest rate you’ve taken it out against. All banks will charge interest on any loans that you take out, but the terms and price vary between providers.
Types of bank loans
Bank loans can be split into different types based on their repayment period and interest rate. Working capital loans provide ongoing funds for paying off debt obligations and other business related expenses while your cash is tied up in stock and money owed by debtors.
Working capital loans are also great for short notice, emergency situations. Credit cards provide similar immediate access to funds for on-the-spot cash payments, although typically at a much higher interest rate.
Fixed asset loans are long-term loans you would take out for buying assets, such as property or machinery. The asset itself serves as a collateral to secure repayment of the loan, meaning that failure to repay the debt will result in the loss of the asset.
If you are looking for finance to cover small monthly fluctuations, such as the occasional, unpredictable delay in invoice payments, a bank overdraft may be a more appropriate financing method for your social business.
For more information, see our guide on overdrafts.