Understanding UK business loans

These are the products that we offer at Handelsbanken – other lenders’ products may differ.

Property loans

These could include:

Corporate property investment loan

This is suitable for borrowers whose security is either a commercial property or a mix of residential and commercial properties, including mixed-use land with no buildings.

Corporate portfolio buy-to-let loan

For borrowers who own four or more buy-to-let units, including any being purchased using this loan, and where four or more are mortgaged across all lenders in aggregate.

Corporate mortgage

This is most suitable for corporate borrowers whose security is an owner-occupied business premises, from which the business operates, and where no part of the property or land is leased to a third party.

Corporate residential buy-to-let loan

This loan is appropriate for borrowers who own fewer than four mortgaged buy-to-let units, and want to use one or more of these units as security to borrow more.

Property development loans

A loan with a likely term of between 12 months and 2 years, to assist with construction or conversion. The money is usually drip-fed into the project and the lender will appoint professionals to monitor the build, ensure that it’s being built in line with expectations, and will be delivered on budget. Once the development phase is complete, the buildings are either sold to repay the loan in full, or the loan is converted into a standard loan, with tenants’ rent being used to make the repayments.

Overdraft

A trading business needs to bridge potential gaps between paying its own bills and receiving income from debtors. That’s where an overdraft comes in. It’s designed to cover a short-term gap in cashflow and the customer only pays interest for the period that it’s used. Overdrafts are repayable on demand. They’re not suitable for the purchase of property.

Asset finance

Asset finance is for businesses that use the likes of plant, machinery or vehicles, with those assets acting as the security. Asset finance can be provided as either hire purchase or with some other lenders, as leasing. With hire purchase the customer will own the asset after they’ve paid all the regular instalments and a small ‘option to purchase’ fee. With leasing the customer pays a rental and never gains ownership of the asset.

The lender will employ an expert to assess whether the asset is appropriate; it generally needs to be identifiable and movable - for example an air conditioning unit would be fixed into a property and be difficult for a lender to recover and resell, so wouldn’t be suitable for asset finance. The asset also has to have a future value. The benefit of asset finance is that the business isn’t using up all its cash to buy the asset and the cost is spread over a period of time.

Brian Lehane, Corporate Account Manager at our Northampton branch, explains how business lending works at Handelsbanken.

We can’t necessarily speak for other banks, but our approach is to get to know our customers as part of a two-way process. They’re trying to tell us they’re a good credit risk and we want them to take the loan with us. 

Receiving a business loan: 6 steps

1. The meeting - If a customer approached us, we’d want to meet with them. We’re a people bank so we want face-to-face meetings where we can. We’d get to know the business and the background. We like businesses with a past and a future: this gives us the confidence that the business is capable of delivering positive outcomes, while a desire to grow gives us the best opportunity to add value.
2. Financial information - We’d then request some financial information so we can assess if the business is a good risk to us. A business can be everything from a sole trader to a large, complex corporate entity. If it’s a sole trader, we may ask for tax returns and accounting information. If they’re a company, they’ll be registered at Companies House so we can check the names of directors and shareholders. We’d also want to look at financial projections, sources of wealth and ownership structure. There’s also paperwork we’d need to see, such as memorandum and articles of association and certificates of incorporation.
3. Risk assessment - This is more than financial - it’s not just facts and figures. The first step in the negotiation is getting to know the people involved in the business. This is important as it helps us to start building a relationship and buy into the strategy and aspirations of the business. It is important to understand not just the goals of today but also those going forward, as businesses need the confidence that their bank is supportive of their journey.
   
   A business needs a partner, and that’s where Handelsbanken comes in – we know where you’ve been, we like what you’re about, we believe you can deliver what you say you can, and if you come to us in a year’s time to grow your business, we should be looking to support you. We don’t rely on credit scores – it’s an experienced banker making the decision; someone who knows their patch, the people, and the history of the area. If we can’t help with a request we always endeavour to explain why
4. Agreeing terms - We work properly in partnership with businesses – that’s how we differentiate ourselves. We look at everything on its merits. Security is important, but the real key is serviceability. There is a tendency in the industry to focus on loan-to-value when requesting a secured loan but the important driver is the level of free cash available to service any liability – working backwards in this manner ensures that any loan facility is appropriate and manageable.
5. Making the funds available - The process of releasing money is generally controlled by solicitors acting on behalf of both the lender and the borrower.
6. Introducing the customer to the key people - At Handelsbanken we make sure we introduce the customer to key figures in the bank. This is invaluable to any business owner who needs to be able to speak to people that know them and their business and can help with day-to-day queries. Meanwhile the relationship manager makes sure they’re available for those more detailed discussions such as financing.
   It’s a personable service, it’s face-to-face. We understand our customers and show a genuine interest in them.