Types of Business Loan

We have has noted more than 100 loan services listed by UK business loan brokers, and that's just on the first couple of Google pages.

We recommend skepticism when reading into loan service labels. Many do not describe what the loan facility is. The intent of many loan service labels also appears to be more to do with marketing than providing the best user experience.

Our philosophy is to: simplify, add subject matter expertise, and bring transparency to the business loan broker market.

That’s why we only offer one business loan facilitation service because that is the simplest and most transparent way to communicate our offering to end-users. Don’t worry though, this service covers every form of business lending, hire purchase, and leasing possible, so we’ve got you covered.

If you’re new to the commercial loan broker market, this approach and the contents of this guide should come as a helpful surprise to you.

Why are there so many types of business loans?

Some business loan brokers report specialist skills, knowledge, or experience in a wide range of sectors. This approach complicates matters for the borrower.

From a marketing perspective, there could be an advantage to advertising scores of niche loan services or claiming subject matter expertise in a particular niche.

Our advice is that you to focus on the decision of facility type rather than the label attached to the loan.

Google Ads

Bidding on a commonly used search term such as “business loan” is expensive because of heavy competition and a high number of results. In February 2021, a Google Ads search campaign costs upwards of £4 per click for this term. Typically only a minority of leads are converted to sales, so plenty of clicks are needed and therefore high costs are incurred to win new business.

If there is competition on a search term, the price will increase. If there is a smaller amount of competition, the price will be less. As there is less competition on niche terms, such as “Dentist loans” (cost per click was £1.50 in February 2021), these niche providers will get that traffic at lower prices.

So — cheaper leads with no change or improved conversion = cheaper client acquisition cost. A business loan broker with a few niches could generate enough leads for their business to be successful.

Search Engine Optimisation

Similarly to using paid search advertising, the less competition there is for a search term the easier it is to rank higher up on the search results. Loan brokers will use the strategy of creating numerous pages for every niche under the sun to generate as many clicks to their sites as possible, even when that type of loan doesn’t exist.

Business Lending Simplified

We believe the best way to analyse your position is to understand the loan security available and what recourse a lender will have in recovering the loan in the event of a default.

BorrowingWell simplifies your position in the market into one of three segments, so you, the borrower, understand where you fit.

These three shades of grey are not as complicated or steamy as fifty, but it is easy to understand, and won't keep you up at night!

Borrower Classification Matrix

There are niches out there that require sector-specific knowledge. Businesses in some sectors will only get funding from a small group of lenders that understand that sector. But, we do not believe the bulk of borrowers fill niche funding. Our criticism of the status quo is that it appears to be more about marketing than providing good service.

It is important to note that this classification is a starting point. There are other factors to consider, but they are very much a scale or dial. These attributes can be rated, e.g. strength of the management team, perception of sector risk.

Advice on term and facility are situation-specific whereas, the above is simply a yes/no classification. We strongly recommend you focus on the loan term and facility rather than labels.

For types of charge please see our jargon buster guide.

Examples of Loan Services

We have prepared the below as our interpretation of what the services offered by the market are.

If you choose to use a different business loan broker we advise you to consider the below points as they're important, not the label.

• What are the characteristics of the loan facility? Fixed-term, overdraft, invoice discount?
• What security is required?
• Is a charge required? If so, what type of charge?
• What side of the transaction is the service referencing? e.g. “auction finance”- is that a loan facility for auction houses or a loan facility to purchase goods at an auction?

Agricultural Finance

This label is broad. The only thing we can take from it is that the service is marketed at Farmers.

The type of facility is not clear, most likely because there is more than one.

This type of loan service likely covers:

• Cash advances- think turkey farmers at Christmas.
• Fixed-term loans for asset acquisition.
• A secured loan with a charge registered at Companies House. Examples of security are land and buildings.

Commercial Fishing Loans

As with the above, this service is most likely an example of sector targeting.

There could be a whole host of loan facilities covered:

• Purchase of fishing permit on a fixed term amortising loan over the life of the license.
• Invoice factoring/discounting for the landed catch.
• A fixed-term, secured loan, with a charge registered at Companies House to acquire a fishing trawler.

Alternative Business Funding

The only takeaways from this service are:

• It's likely to be funded by a non-bank lender.
• The lender may take an alternative method to how it identifies the security.
• The forecast cash flow of the borrower may also be how the lender gets comfort.
• It is unclear if security or a charge is required.