If the economy is going to recover quickly then small businesses need to kick-start the recovery, but credit is becoming increasingly difficult to obtain as banks tighten the flow of credit to only those who are most likely to pay back the debt with no late payments or issues.
The Government is introducing some measures to try and get money to the right places: an £82.5 million loan scheme has just launched to provide credit to graduates and school leavers in the 18-24 age brackets who want to start their own businesses. This seems like a step in the right direction.
Nonetheless, schemes like these are very specific and it’s often reported that there are general problems with small to medium sized businesses getting credit: the first annual report by Professor Russel Griggs - the independent reviewer who is currently examining credit to small businesses revealed that around 14 percent are being rejected outright - much higher than the one percent figure that the British Bankers’ Association chooses to highlight.
As a consequence, alternative loan providers – - such as those who specialise in payday loans - are thriving. But the interest rates offered by these firms can compare very unfavorably with a personal loan from a bank.
Here are three tips to make sure that a good personal loan can be obtained, for both small businesses and individuals.
It’s now a given that a search for any financial product - including loans - should start with a quick search on one of the many websites that provide financial advice and an aggregated view of financial products.
This is a great place to start, but it’s also worth remembering that some of the best deals aren’t always included on these sites: speaking to banks directly, starting with your own bank, can sometimes result in discounts and special offers.
Key site: Financechoices.co.uk, a great up-and-coming financial advice site.
Investigate social lending
There is a growing alternative to using banks: social lending. Broadly, social lending involves people lending to each other using a central web service as a facilitator and arbiter. Interest rates and fees are often lower than banks and people can be less reluctant to lend due to the mutual benefits of a lending arrangement.
Social lending is beginning to take off after a few years of inertia and speculation and it was recently reported by TechCrunch that the social lending market surpassed $1 billion in April alone.
Key site: Zopa.co.uk: the UK’s largest and most authoritative social lending hub.
Know your credit status
To get credit, it’s of pivotal important to have a good credit rating and there are many ways to maintain a good rating or rebuild a bad one, including obvious steps like not missing credit payments.
To start with, though, it’s fundamental to know what your situation is so that the rating can be either improved, if bad, or loans and applications can be made with confidence if the rating’s in good shape.
Key site: Experian.co.uk provides advice and online rating checks.
Getting credit is difficult, but sticking to the three hints above should make the process easier to manage.