Business Loans For Non-Homeowners – What Are Your Options?

Written by Conrad Ford on March 20, 2019

Updated February 13, 2022

Business woman searching for a loan online

When you apply for a personal loan, one of the first questions lenders ask is ‘are you a homeowner?’. If the answer’s no, anything beyond a low-value, unsecured, personal loan may be beyond your reach. However, if you’re a business owner, the answer as to whether your business loan is approved is determined by additional factors including:

  • Whether you’re a sole trader or limited company
  • How long you’ve been operating
  • Your profitability/long-term prospects.

The question of home ownership is generally asked by more traditional lenders (banks and building societies), who might complete credit checks on directors before deciding on your application. If you apply for alternative business financing, lenders tend to look at the wider risks associated with offering you a business loan.

Alternative Business Financing

The first option many business owners will consider when they’re looking for financing is a business loan offered by a traditional lender. They’ve fixed terms, a fixed interest rate, and you’ll need to provide a copy of your company accounts along with other documentation to evidence your ability to make repayments.

This won’t be too much of a problem for larger, well-established, companies. However, smaller businesses or start-ups may struggle to evidence their financial standing, resulting in the lender asking owners or directors to use their home or other assets as security. If your directors aren’t homeowners, this could stop their application in its tracks.

This is where alternative business financing comes in as it offers businesses, regardless of whether the directors are homeowners, the chance to take out a loan to cover a gap in their cash flow or invest in future business growth.

There is a range of alternative business finance options available depending on the size of your business, your business’ credit rating, and the sector in which you operate. We’ve outlined your options below. It’s important, however, that you understand fully what’s involved with each before making a final decision.

Merchant Cash Advance

Merchant Cash Advances are a way for businesses paid largely by credit or debit card through terminals to raise money. You’re approved based on the number of card sales your business makes, the value of these sales and how long the business has been operating.

Repayments are made on a daily basis based on credit card sales; they are generally 10-18% of sales. This means there’s no set minimum monthly payment, making it ideal for companies working seasonally.

Merchant Cash Advances aren’t loans, which means they aren’t regulated in the same way. However, a number of lenders have signed up to guidelines developed by the British MCA Association (BMCAA), which will give you some level of protection so look at these lenders first.

Business Asset Finance

Business Asset Finance lets a business lease or buy equipment by making monthly repayments for anywhere up to seven years. Repayments are set and can’t be changed for leased equipment; however, you might be able to make early repayments for purchased equipment.

This is a great option for start-ups needing equipment to begin trading or businesses wanting to invest for growth. However, it only works for specific items such as IT, construction or catering equipment. Plus, you might need to pay a deposit up to 25% of the equipment’s value.

Remember, at the end of the lease, you don’t own the equipment and will need to make an additional payment in order to keep it or take out a new lease.

Commercial mortgages

If you’re looking for a loan to purchase property, you could apply for a commercial mortgage. These work in much the same way as personal mortgages: you’ll need to put down a deposit (which could be up to 20% of the property’s value) and be tied into repayments for up to 25 years.

If you don’t plan on being in the property long-term, you could end up stuck if you can’t sell or rent the property on. So, if you plan on moving in the foreseeable future, you might want to look at other forms of financing.

Invoice Financing

If you’re running a business to business (B2B) company, you can take out a loan based on the value of outstanding invoices. This can be done as a one-off or ongoing arrangement dependent on what you need the loan for, and you can choose to have our lender chase outstanding invoices or do this yourself.

Once you’ve raised an invoice, you submit this to the lender, who gives you up to 90% of its value; when the invoice is paid, you receive the remainder minus a processing fee.

There are different fees attached to invoice financing, including for late payments and money transfers. If you set up invoice financing as a long-term option, you might also be charged a monthly administration fee.

Pension-led financing

If you have a large enough pension (at least £50,000), you can lend against this in order to finance your business. One of the benefits of pension-led financing is that any interest paid on the money lent is paid back into your pension fund, increasing its value. However, if you can’t make your repayments, your pension is at risk.

You can spread the risk of pension lending by using multiple pensions to raise finances. This includes using the pensions of directors or family members.

Peer-to-peer lending

Peer-to-peer lending has become increasingly popular in recent years and is a great way for SMEs to loan money without having to apply to a traditional lender. Peer-to-peer lending is generally cheaper than banks, although the peer-to-peer site may charge a fee on top of the interest you’ll pay.

Crowdfunding is a form of peer-to-peer lending and an excellent way for all businesses or start-ups to get funding, especially for a new or innovative idea. However, there’s a risk you could get ‘lost in the crowd’ or not be able to raise the full amount of money needed.

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