Soft Loan Options for Your Business

There are soft loan options for your business that should be considered if traditional borrowing routes have proved to be unsuccessful. Soft loans may have lower interest rates and will not usually need security as a guarantee of payment. Soft loans may be ideal for start-up businesses who are finding it difficult to gain funding from banks and building societies.

How Soft Loans Work

A soft loan is a business loan that is usually provided through Enterprise Agencies, the government, or large corporations. Local Enterprise Agencies will offer these loans to businesses if the business meets their requirements and stipulations. Loans from the government will not usually have to be repaid until the business is making a profit. If the business fails then this loan will convert into a grant, and this does not have to be repaid. There are around 500 different soft loan schemes in the UK and the majority of these are locally based for local businesses.

Why Businesses Need Soft Loans

In many cases new businesses will find it hard to achieve funding from traditional routes such as banks and building societies. This may be because traditional lenders will require some form of security on a loan that the new business is not able to provide. Most banks will usually only grant business loans and overdrafts after a list of stipulations has been fulfilled. The requirements for soft loans will not be as stringent as those laid out by traditional lenders, and there will usually be business advice and help available from soft loan agencies.

Non Government Sources

There are non government sources that offer soft loan options. These will include Enterprise Agencies sponsored by large corporations. One of the main advantages of a soft business loan is that those providing the funding will be able to give expert business advice. Fund managers will usually take a great amount of interest in the business that has been granted the loan. Banks and building societies may look more favourably on subsequent financing applications once a business has gained a soft business loan.

Soft Loans And Leverage

Leverage is the term used when the risk to other lenders is reduced due to funding through options such as soft loans. The risk is reduced to lenders such as banks, and there may actually be agreements between banks and soft loan providers. It may be the case that a bank will match the amount that has been placed into the business via the soft loan. By doing this the business can achieve full funding through two separate sources with less risk to the lenders.

Advantages Of A Soft Loan

The main advantages of a soft loan will include reduced interest rates and no security required before the loan is granted. There can also be other benefits such as payment holidays. In many cases the loan will not have to be repaid until the business is making a profit. Unlike other external investors, the soft loan lenders will not usually require a say in the running of the business or shares in the business. Government agencies will be able to provide support including advice and information that will help businesses to reach their full potential.

New businesses that have been turned down for financing from traditional methods will find the funding, help and advice from Enterprise Agencies beneficial. Achieving this form of support is not guaranteed but it is well worth looking into if business funding is required. Professional financial advice should always be taken before any business funding is accepted.