Advice on where to get a small business loan

[stormy3000]

Hi,

The rationale behind thinking a business loan is now the best idea for us:
Our business now 5 years in, is doing well and the main thing holding growth back now is being able to up our staff. Up to now, I've grown the business at its own speed as budget allowed learning multiple aspects of the business as I've gone.

The issue now is it gets too busy, so all hands tackle the work at hand and no one is free to tackle helping to grow the business, which is something I want to focus on myself. We have a small in house team (3) then remote freelancers for design work.

We have a good influx of work and deliver good bespoke products. Our marketing and SEO approach is paying off. So to 'make hay whilst the sun shines', I think the time is right to invest in scaling up our staff numbers.

After a good 6 months of rational planning, we have come to the point that looking at getting a small business loan to enable us to bring in 2 to 3 full/part-time members of staff seems viable and we can go from there.

We could wait for cashflow to allow us to do it.. but I can see based on current projects that won't be possible for around 3 months. Which could see the continued 'being swamped' approach continuing?

Can anyone (who is not selling it) recommend some of the better business loan options?..

Otherwise, Funding circle, who have always sent letters and appear in google results is one option. Or I go and talk to our own bank.

Other ideas are very welcome.

Some reason why this is a terrible idea?

 

[Gordon - Commercial Finance]

I sell business loans, so you’ve already excluded me from recommending better options. However those of us that sell the stuff you could argue are the ones who know stuff about it....

Funding Circle are really one of the few who are lending money to small business at the moment. Just don’t expect to get the 1.9% that they advertise. That has never happened. Ever.

Your bank will not lend you money.

How much are you looking for?

 

[Neil Lukins]

There are many loan providers out there who can assist you - over 300 in fact. The choice of lender is vast at present from Banks, Independents to Peer to Peer lenders.

The question that many will ask is whether or not the loan will be secured or unsecured.

If secured you could get terms of up to 60 months (possibly 120 months).
Unsecured loan terms are usually 12-24 months.

Funding Circle are having a bad time at present and the headline rates are not what you will get. They are there to entice only. They are now doing more checks so they are not approving as many as they had done in the past.

At the end of the day a loan is a loan so reccomendations are usually just based on the rate and ease of set up. Get these right and you will get a good loan reccomendation.

Have you thought about a flexidraft?? Like an overdraft but you only pay for what you have utilised whereas a loan could be drawn and sat in your account not being used and you are still paying interest? Just something a number of my Clients are now using instead of a loan.

 

[Gordon - Commercial Finance]

The question that many will ask is whether or not the loan will be secured or unsecured.

Well those that read the post wouldn’t ask that.

 

[Mr D]

Best may well be friends and family.

Be a good idea not to exclude the specialists in lending. There are some online lenders for particular business types.
Have you looked at different methods of finance besides loans?

 

[Mr D]

Well those that read the post wouldn’t ask that.

Well we could but the answer may not matter to the non lenders among us.

 

[Neil Lukins]

Well those that read the post wouldn’t ask that.

Sorry - Its should have read
"The question that many lenders would ask"

Typed the response without proof reading. Thanks Gordon for pointing out the mistake.

 

[Mark T Jones]

I sell business loans, so you’ve already excluded me from recommending better options. However those of us that sell the stuff you could argue are the ones who know stuff about it....

Funding Circle are really one of the few who are lending money to small business at the moment. Just don’t expect to get the 1.9% that they advertise. That has never happened. Ever.

Your bank will not lend you money.

How much are you looking for?

I’d speak to Gordon. You don’t have to buy from him

There really aren’t that many unsecured loan providers out there

 

[stormy3000]

Many thanks for the replies it's been massively helpful already. I'm currently exploring 3 different options from those suggested above. I'll then take a view on what would be most beneficial.

It's great to have finally made the decision to now invest further into the business after lots of consideration.

 

[BristolBiz]

or do you increase your prices = reduce your workload, increase profitability, minimise your risk. etc

just a thought (but it's a nice dilemma to have!)

 

[Ian J]

We have a good influx of work and deliver good bespoke products. Our marketing and SEO approach is paying off. So to 'make hay whilst the sun shines', I think the time is right to invest in scaling up our staff numbers.

We could wait for cashflow to allow us to do it.. but I can see based on current projects that won't be possible for around 3 months. Which could see the continued 'being swamped' approach continuing?

Can anyone (who is not selling it) recommend some of the better business loan options?..

Have you thought about spot factoring? It's easy in easy out with no contractual commitments or minimum charges but it isn't suitable for everybody.

If you haven't come across it before have a look at this webpage and if you think it's suitable, contact one of the hundreds of factoring brokers around who know far less than me

 

[Mark T Jones]

Many thanks for the replies it's been massively helpful already. I'm currently exploring 3 different options from those suggested above. I'll then take a view on what would be most beneficial.

It's great to have finally made the decision to now invest further into the business after lots of consideration.

Best of luck with the process.

Not to be alarmist, but I'll throw in a few caveats:

Always remember that any borrower (or failed borrower) giving an opinion on a lending source will almost certainly have different needs and circumstances than you. In particular, those who dismiss a particular lender as 'rubbish' have more than likely been declined. If your credit is decent, you won't be - so their opinion irrelevant.

If you are using a broker, chose with care. There are a small number of dodgy ones out there, and a fair number who aren't really specialists in anything. Favourite tricks of the crooks include making big promises without gathering real information and issuing 'offers' that aren't really offers at all. They also like to create urgency to sign.

As with any purchase, don't commit to anything until you have read and understood what the deal is.

 

[The Byre]

After a good 6 months of rational planning, we have come to the point that looking at getting a small business loan to enable us to bring in 2 to 3 full/part-time members of staff seems viable and we can go from there.

We could wait for cashflow to allow us to do it.. but I can see based on current projects that won't be possible for around 3 months. Which could see the continued 'being swamped' approach continuing?

Some random thoughts in no special order -

1. Why not take on just one person first, possibly part-time, rather than roll the dice on two or three full-timers?

2. With a more gradual approach, you may discover that you can finance this yourself without borrowing and thereby increasing your risks.

3. There is a headlong rush in the media into CGI (well, there has been for quite some time now) and perhaps a tentative step in that direction might be a good move - even for corporate stuff. Maya and Cinema-4D beckon! There's a goodly amount of bread-n-butter stuff like landing or blowing up a helicopter, layering and match-move work out there.

 

[stormy3000]

Replies to some random thoughts..

Some random thoughts in no special order -

1. Why not take on just one person first, possibly part-time, rather than roll the dice on two or three full-timers?

• In some respect that's what I have been doing and will be doing more of. Plus this slow and safe approach has allowed us to steadily 'mature' as a business (and owner) over the past 5 years. Our one employee on the payroll went from being a part semi-regular freelancer to contracted, to employed 4 days a week. Plus I've just offered a job (and had accepted) for someone to join us as a marketing/production assistant for 5 hour days, 4 days a week. Starting in the new year, with a trial period. The next role I'd like to fill would be a seasoned animator to join the ranks with specific skills, ensuring our production times can increase. That role wouldn't really suit part-time as I'd like to quickly bring them up to speed with our studio's ways of working. Plus we have our list of talented freelancers to call upon.

2. With a more gradual approach, you may discover that you can finance this yourself without borrowing and thereby increasing your risks.

It is certainly tempting to stick with the slow and steady route. Though in this instance I really believe that if we want to grow quickly the best way is through a bit of added investment. We're ranking in the top 3 spots for lots of search terms on google which are driving leads, and believe our approach is working and so investing more in our current marketing effort (not much on pay per click advertising) will pay off now and in the coming years.

3. There is a headlong rush in the media into CGI (well, there has been for quite some time now) and perhaps a tentative step in that direction might be a good move - even for corporate stuff. Maya and Cinema-4D beckon! There's a goodly amount of bread-n-butter stuff like landing or blowing up a helicopter, layering and match-move work out there.

True..whilst I think our current bread and butter work may lay elsewhere. We are about to start some great looking CGI work, plus finishing 3 videos with great looking CGI for instructional videos. Sadly none involve animating explosions and special FX.

 

[Guy Incognito]

I've used Funding Options in the past and found them to be very efficient. Their brokers took the time to understand our business and recommend good options.

Funding Circle were a waste of time.

Banks won't be interested. They're happy to lend you money when you're established / don't need it but forget about it unless you can tick every single box required.

 

[Gordon - Commercial Finance]

Funding Circle were a waste of time.

Did they decline you?

 

[Mark T Jones]

I've used Funding Options in the past and found them to be very efficient. Their brokers took the time to understand our business and recommend good options.

Funding Circle were a waste of time.

Banks won't be interested. They're happy to lend you money when you're established / don't need it but forget about it unless you can tick every single box required.

Funding Options might be great - I don’t know them

funding Circle definitely aren’t useless (though I have doubts about the sustainability of their model)

it’s always worth asking the bank. They are inconsistent, but sometimes come up trumps

 

[Gordon - Commercial Finance]

funding Circle definitely aren’t useless (though I have doubts about the sustainability of their model)

Not useless in general no, but I know their criteria is strict around property development, which may be why Guy found them to be so. Quite a specific circumstance though which isn’t relevant to the OP.

I think Funding Options are a broker though aren’t they?

 

[Guy Incognito]

Did they decline you?

No. They offered us an amount which was less than we needed, at a very high interest rate. I get why they did it, but they wasted weeks of our time saying they would be able to do it and then offered nothing close to what we had been discussing. I'd much rather they had been honest which would have saved us both time and hassle.

We were a very young business at the time and their sales team said we'd easily be able to get the money we required - whereas they actually require years of accounts etc. Basically you need to have filed accounts showing various things whereas we had undergone exponential growth and they wouldn't think outside of the box ticking.

I'm sure they work for some people. They didn't for us and might not for companies undergoing rapid growth.

 

[Gordon - Commercial Finance]

No. They offered us an amount which was less than we needed, at a very high interest rate. I get why they did it, but they wasted weeks of our time saying they would be able to do it and then offered nothing close to what we had been discussing. I'd much rather they had been honest which would have saved us both time and hassle.

We were a very young business at the time and their sales team said we'd easily be able to get the money we required - whereas they actually require years of accounts etc. Basically you need to have filed accounts showing various things whereas we had undergone exponential growth and they wouldn't think outside of the box ticking.

I'm sure they work for some people. They didn't for us and might not for companies undergoing rapid growth.

They can be a bit “computer says no” sometimes yes. Shame you had that experience though...
I recently sorted a client out with a loan from them and was surprised at the rate, but when I tried to discuss it with them they have no control or movement when “the risk model” makes a judgement.

 

[Guy Incognito]

They can be a bit “computer says no” sometimes yes. Shame you had that experience though...
I recently sorted a client out with a loan from them and was surprised at the rate, but when I tried to discuss it with them they have no control or movement when “the risk model” makes a judgement.

That was my impression, I would always rather use a broker who gets the time to understand our business.

I was able to get what we needed through Funding Options who sorted it through Just Cash Flow.

We also used PayPal working capital which we were very impressed with - good rates, incredibly speedy transfer of funds. We'll use them again next year as growth continues.

 

[The Byre]

Though in this instance I really believe that if we want to grow quickly the best way is through a bit of added investment.

My only fear with that is that the same may easily happen to basic animation and even into CGI work that happened to audio and video editing and the recording of music - they went from the strict domain of the professional because of the technical difficulties and the high cost of equipment, to a consumer-based activity. Today, almost every kid has some audio software and every musician has their own recording studio.

With sophisticated editing and finishing software like DaVinci-Resolve being a free download and even the most advanced audio tools are today completely free (and of course 3D graphics packages like Fusion are also free) if the same happens to animation and CGI that happened to music-making, you may end up with a debt burden in a market that is over-loaded with semi-pro bottom-feeders!

 

[japancool]

Be aware that Funding Circle are VERY aggressive at chasing payment.

Personally, I;d recommend staying away from them.

 

[Mark T Jones]

Be aware that Funding Circle are VERY aggressive at chasing payment.

Personally, I;d recommend staying away from them.

Not really a problem if you pay though

 

[Mr D]

Not really a problem if you pay though

I hear most lenders are happy if they get paid on time.

 

[Gordon - Commercial Finance]

Be aware that Funding Circle are VERY aggressive at chasing payment.

Personally, I;d recommend staying away from them.

All lenders chase payment aggressively. They make their money only when people pay back their loans.

 

[Guy Incognito]

Be aware that Funding Circle are VERY aggressive at chasing payment.

Personally, I;d recommend staying away from them.

That's absolutely fair enough in my book. They've lent the money so they should be paid back as agreed.

 

[stormy3000]

My only fear ... ... if the same happens to animation and CGI that happened to music-making, you may end up with a debt burden in a market that is over-loaded with semi-pro bottom-feeders!

Interesting, I could (and probably do) chat about this stuff all day.

I agree and think the lowest end of the market, idents/presentations have shot to the bottom for the budget due to online freelance services i.e. Fivver. Plus animation templates make it easy for a low skilled animator to achieve decent results. There are also sites that automate the production too for these. Though if you wanted any amends/customisations outside of what's there you'd be stuck but it's an interesting development for sure.

We've never been after that market and focus on more bespoke productions which I think automation is a long long way off catching up to if even possible. Plus the advancement in some tools means we can speed up production allowing us to be competitive in the middle area of the market still, lowering our own time and costs.

.......

The subject of raising finance:
• We were offered finance by Funding circle - More than we needed, as they said if approved its easy to go for less. We've not yet said yes, whilst we look at other options. The rate is high at 14.5%. I understand, that if we shortened the payment terms (i.e. from 60 months to 24) the rate should go down. You can pay it all off in one lump without incurring a penalty fee, but cannot pay off extra chunks in instalments (apart from the standard monthly payment).

• I've applied for a flexible overdraft with our bank. This seems like the most appealing option at the moment (if we get approved). The rate looks good and it will suit the future better. Plus as cash flow fluctuates there are obvious benefits, i.e. reduced overdraft during the cash-rich parts of a project.

• Still looking at other options too... including Swoop Funding which looks interesting, either from a grant or loan approach.

 

[Mark T Jones]

When you describe 14% as expensive, what reference points are you using?

Don't under any circumstances just compare APRs on unrelated products - it will give nonsense results.

If you want a 'dip in facility, then overdraft might well be your best option (also consider factoring). On the other hand, if there is likely to be a spending surge with gradual returns then loan often makes more sense. To a large extent your cashflow projections should answer these questions.

I'm not familiar with Swoop - on the face of it they seem to just be a rate comparison site?

Just one last point - the most expensive finance product - by far - is the one whee you can't meet repayments. Don't b tempted to go for unreasonably short terms just to bring the rate down

 

[Gordon - Commercial Finance]

We were offered finance by Funding circle - More than we needed, as they said if approved its easy to go for less. We've not yet said yes, whilst we look at other options. The rate is high at 14.5%. I understand, that if we shortened the payment terms (i.e. from 60 months to 24) the rate should go down. You can pay it all off in one lump without incurring a penalty fee, but cannot pay off extra chunks in instalments (apart from the standard monthly payment).

As Mark mentions above, in order to compare this with anything it really needs to be clarified what that rate is. Is that an APR? Yield? Flat Rate?

If its a flat rate, that's expensive. Very expensive in fact.
If its an APR, its cheap and you should bite their hands off.
If its a yield (as I suspect it is), then I would say its a pretty reasonable rate. The fact that they're offering more than what you've asked for suggests that they believe you can easily service the debt, but you need to remember its an unsecured loan. There's no asset to repossess if you stop paying. Especially on a 5 year term, so much can happen in 5 years that the lender is taking a huge risk, and should probably expect to be compensated for that risk. They're a business too.

Regarding the early repayments etc and the ability to overpay, no their system doesn't allow regular overpayments because a loan is funded across a wide range of investors, and so overpayments of capital would have to be repaid back to those investors which would get messy, particularly for relatively small, monthly overpayments which could have to be split and distributed to hundreds of investors.

I arranged a loan through FC for someone recently and the rate was higher than either of us had expected. The client asked about early repayment and overpayment, and I had to pass on the same info as you have received. What I said to the client was, if you have the ability to overpay, just put that extra money aside and aim to pay the loan off in full after 3 years instead of 5 with no penalty. In this particular instance, that would save this client around £20,000 in interest.

You can obviously service the debt (or they wouldn't have offered you more), and you should even be able to overpay (or they wouldn't have offered you more), so get comfortable with the rate, which is probably pretty reasonable when looked at in context, and put a plan in place.

Speaking of context, I've seen tier 2 credit customers get offered rates of 14.5% (yield) on secured business over 5 years. You're doing better than you think at that rate.

 

[stormy3000]

Thanks for the two replies... and you're 100% right my basis for whether it is, in fact, a good rate or not is flimsy at best.

In terms of the current funding circle offer, the more exact details are

£50k, over 60 months.
Fixed interest rate of 14.9%
Loan completion fee of £2950
Cost of credit: £25.413
APR 19%

I'm looking at other options too to be able to make an educated decision.

The feedback here is incredibly useful, so thank you for the frank and helpful replies.

 

[Gordon - Commercial Finance]

Thanks for the two replies... and you're 100% right my basis for whether it is, in fact, a good rate or not is flimsy at best.

In terms of the current funding circle offer, the more exact details are

£50k, over 60 months.
Fixed interest rate of 14.9%
Loan completion fee of £2950
Cost of credit: £25.413
APR 19%

I'm looking at other options too to be able to make an educated decision.

The feedback here is incredibly useful, so thank you for the frank and helpful replies.

That's pretty good. Fixed rate of 14.9% is what I would have referred to above as a yield.
I think based on the publicly available info, you've got a good offer there. I would look into doing what I've described above re making a plan to repay in 3 years instead of 5, in lieu of overpayments, and you will save a fortune.

The loan completion fee at 5.9% is a little odd. Am I right in thinking you've done this through a broker? I may be wrong in my recollection of what their standard direct fee is.

 

[stormy3000]

It was done directly through them, so I assume the completion fee is standard now, if not before.

Thanks for the tips on having a very real plan to pay it off early to save a considerable amount. A sensible but easily overlooked thought for sure.

 

[The Byre]

Interesting, I could (and probably do) chat about this stuff all day.

Your colleagues in audio used to talk about this subject. The middle market, the bread-and-butter market in audio doesn't talk much anymore because they are nearly all out of business. The Big Boys who can record an orchestra used to say that there will always be a demand for high-end orchestral movie scores - yer, right! That work is getting thinner and thinner as the East European audio facilities are now fully up to scratch and all the top-flight East European musicians who came to London for lucrative session work are now going back home (or have already gone) and taking all that valuable know-how with them.

Just below that is the middle market and that is today largely serviced by musicians and audio engineers with home studios armed with sample-packs.

I agree and think the lowest end of the market, idents/presentations have shot to the bottom for the budget due to online freelance services i.e. Fivver. Plus animation templates make it easy for a low skilled animator to achieve decent results.

I don't think that is where the danger will come from - though we never know who will be the first to knock-out a killer animation package as a cheap plug-in for Premier, Hit-Film, Vegas or Resolve or as an online thing.

When one looks at what cheap plugs for the above are capable of and can be done within the editor - it used to be the work of a specialist FX studio to add fire and flames, a muzzle-flash or enhance a 'wet' explosion - now the editor is expected to do that. Wire and object removal was a programme that cost tens of thousands from Quantel - today it is bundled with almost every editing SW (or is a $20 plug) and Quantel has vanished. DaVinci was a colouring programme that cost $250,000 when it came out - today it is a part of DaVinci-Resolve + Fusion + Fairlight and can be downloaded for free from Black Magic Design. If owner/manager Grant Petty finds a distressed animation SW company going cheap - he'll snap that sucker up and bundle it with Resolve, merely to help sell his cameras and switchers! Either that or Google will do to animation what they are doing to translation.

We've never been after that market and focus on more bespoke productions which I think automation is a long long way off catching up to if even possible.

Being bilingual, I was involved in a fascinating project to create translation software and thousands of people created and corrected any and every idiomatic phrase and specialist technical description for English, German, French, Spanish and Italian. That entire project was squashed like a bug-on-a-rug by Google-Translate. If there was ever one thing that was the Holy Grail of language software, it was to be able to turn English into grammatically correct German. It seemed almost impossible to do as in English all the various cases and genders of nouns that existed in the original Saxon family of languages from which both E and G sprang have been dropped (except the dative in 'to whom'). Even the word-order is nearly always completely different.

OK, Google Translate doesn't get everything always completely and idiomatically correct - but by golly it's close! We are now just a heartbeat away from the Babelfish - instant in-your-ear translation!

OK, so how should this headlong acceleration in SW development effect you?

You want to take on debt - and debt increases risk.

a very real plan to pay it off early to save a considerable amount. A sensible but easily overlooked thought for sure.

I would say vital in this case! This is a market that may change in months! Being fleet-of-foot and ready for anything and everything will become even more important.

Everyone in the creative industries has to get ready for the developments to come - and for those of you playing 'The Home Game' the creative industries now account for 10% of the UK economy and have overtaken manufacturing, which has fallen to just 8% as investment and productivity continue to stall.

And talking of 'The Home Game' here are some links for those who want to bone-up on some of the topics here -

https://www.blender.org/features/ (free 3D graphics SW)
https://www.reaper.fm/reviews.php (IMO, the best audio workstation and just $60 and unlimited trial period)
https://www.blackmagicdesign.com/uk/products/davinciresolve/ (fast becoming the go-to editing, finishing and FX software for film and TV)

 

[Chris Ashdown]

That is a well though out and balanced reply Mr Byre, well done

 

[JamieM]

It was done directly through them, so I assume the completion fee is standard now, if not before.

Thanks for the tips on having a very real plan to pay it off early to save a considerable amount. A sensible but easily overlooked thought for sure.

I have a couple of FC loans and both had similar loan completion fees which worked out at between 5% and 6%.