Perhaps the most common form of business loans are overdrafts and bank loans. An overdraft is related to a business bank account and allows the bank’s customer to borrow funds, over and above the money contained in the account, to an agreed limit. Most banks will consider extending an overdraft to business customers with a good track record of making repayments or being in credit.
A bank loan, on the other hand, is usually a separate sum of money that is borrowed for a set time period, with a repayment schedule that is fixed. Interest rates on bank loans can also be fixed or variable. To warrant a bank loan, businesses are expected to have a clear repayment plan detailed in their business plan; the bank will also want to know if there are any other financial commitments, such as other debts, business loans or an overdraft.
When approaching a bank or other lender, be sure to have the information they will want to see, including audited accounts, bank statements, plus fully costed indications of current and projected levels of trade. Include cash flow forecasts to demonstrate sound business planning.