The temptation can be strong, especially when cashflow feels tight. However, it’s essential to understand the real risks and common pitfalls, particularly with products that appear quick, easy, and attractive on the surface.
Many loan providers present excellent reviews, high approval ratings, and seemingly low interest rates. But accreditations and marketing aren’t the issue, the true concern is the actual cost of borrowing and the impact on your business’s cashflow.
Loan Companies
These lenders often promise fast access to capital, minimal paperwork, and instant approval. But speed usually comes with a price.
The example below, based on a real case that was made and the actual cost compared to a high street bank loan based on 15% APR, demonstrates how expensive these loans can be once fees and interest are included. Not all lenders are the same, but caution is essential.
| Loan Company | Bank | ||
|---|---|---|---|
| Loan Amount | 3,000 | 10,000 | |
| Arrangement Fee | 90 | 0 | |
| Term | 18 weeks | 60 months | |
| Weekly Repayment | 250.00 | 44.44 | |
| Total Repayment | 4,500 | 11,555 | |
| Total Cost | 4,590 | 11,555 | |
| Interest Paid | 1,500 | 1,555 | |
| APR | 1,198.84% | 6% |
PDQ loans / Merchant cash advances
Many PDQ providers offer what’s known as revenue-based finance. The structure looks simple:
- You borrow £10,000
- They then deduct a fixed percentage—often 10%—from your daily PDQ (card) takings
- These deductions continue until the provider recovers the full £10,000 plus interest and fees
Although repayment automatically adjusts with your daily revenue, this type of finance can be extremely expensive in real terms.
Credit cards
A credit card offering a £10,000 facility may seem straightforward. Monthly minimum payments are typically low, but interest on any remaining balance is often high.
This makes it easy for the debt to linger, and grow, especially during slow trading months.
Bank Loans
Whether through your existing bank or another provider, traditional bank loans may be more accessible than many people realise. Currently, the Growth Guarantee Scheme (GGS) provides a 75% government guarantee, making these loans more attractive to lenders.
Because of this support, interest rates are often significantly lower, frequently below 15%. For many businesses, a traditional bank loan is the best place to start when seeking finance.
Before entering into any loan arrangement, it’s wise to seek trusted advice from your accountant. Even if there is a fee for this guidance, it can prove invaluable in the long run.
At ELTA, we don’t charge clients for this support, as we believe informed decisions help sustain your business well into the future.
