UK Loans and Their Types

Definition of Loan:

A loan is like a debt; given by the lender to the borrower and taken back with extra amount known as interest. It is repaid in installments or up front. In technical terms, interest is called the cost of a loan.

In the modern business world, there are many financial institutions providing loans for business. Loans are divided into two categories that are given below:

Short-Term Loans:

Short term loans are the type of loans that meet maturity within a year or less or are payable within 12 months. Short-term loans include lines of credit, working capital loans and accounts receivable loans.

Long-Term Loans:

Long term loans are the type of loans that are held for more than one year or meet maturity after one year. Mortgage loans can extend from 10 to 20 years. These loans are taken up for capital expenditures of the company such as vehicles, purchasing expenses, construction, furnishing, etc. They are also helpful when business needs help when it is in a depressed or declined cycle. Following are the types of loans banks provide in the UK for starting up small businesses:

Credit Cards:

According to surveys, credit cards are widely used for business purposes in the UK. A revolving credit is considered a good business tool here.

Lines of Credit:

This type of loan is very useful for daily operations. Credit line offers are usually for 90 days but can go a year or two depending on the amount borrowed.

Equipment Leasing:

This is a technique used to help business get equipment. The bank requires your credit history and it should be good. Another way is to lease through the subsidiary of the company.

Letters of Credit:

The bank acts as an intermediary party between the borrower and the lender. It promises to pay the money to the lender if all the conditions are met. This is very helpful in international business.