Quick to Access
The process of applying for loan is normally very quick in comparison to seeking other forms of funding.
Many of the more innovative lenders now require that established and profitable companies supply only company accounts and director identity documents in order to make a loan decision. That decision is often made in a matter of hours rather than days or weeks. For companies that are offered a loan the funds can often be in their bank account shortly after this. These lenders are typically found on online platforms and often have an approval process that interfaces the client with a web based application process rather than requiring the client to interact with representatives of the lender.

More traditional style lenders, such as high street banks typically have a higher information requirement than online lenders and the decision-making process and receipt of funds by the applicant is normally a lengthier process. Unless the applicant is an existing and well known client the bank will often require a business plan and financial forecasts as well as historic company accounts and director identity documents in order to consider a loan. Often, banks still rely on a centralised credit team (the decision making part of the bank) which means that your local branch manager may not have the ultimate say in whether you are provided a loan or not. Due to this decentralised, human based decision making process, the time taken can be significantly longer than the algorithmic systems used by many online lenders – however, they are able to consider certain circumstances, which an online lender’s application systems may not be flexible enough to consider.

No Loss of Ownership or Control
One of the benefits of loan funding is that a business owner is not required to give away any ownership of their company, as would happen if they were looking to raise equity investment funds. Because loan funding is repayable, the benefit to a lender of making a loan is that they receive the interest charged on the borrowed funds. The interest is their return from the investment. Therefore, they do not require a stake in the company as an equity investor would require. This means that should the business be sold in the future the lender does not hold any equity and the proceeds from the sale would go to the existing equity holders.

Additionally, in an equity investment, the investor will become a shareholder and often also a director in the business and (depending on the stake held) able to exert influence over business and board decisions. Many business owners are reluctant to give away equity if they can avoid doing so since having the maximum possible control of a business is traditionally considered favourable. However, in certain circumstances the added experience and skills that an equity investor may bring to a company can be invaluable. We will consider this in more detail in future blogs.

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