BUSINESS | PPC112 September 2023

In his comprehensive guide, James Robson, CEO of finance comparison site FundOnion, explains the types of business loans available to pest control companies.

All too often, it isn’t ambition that stops SMEs from growing – it’s cash. Responsible borrowing can supercharge a pest management company’s growth. Whether you’re looking to spend on new vans or equipment, investment in a new service, or a marketing drive, a business loan could set you up for success.

A business loan is any loan offered to a commercial entity rather than an individual person. As with all loans, it involves the creation of a debt, which will be repaid with added interest. Several different types of business loans are available to pest control companies, which I’ll go through in turn. 

Term loans

The most familiar kind of business finance is the good old-fashioned term loan. In recent years, high street banks have been unable to provide smaller-sized business loans because of increased regulation and higher costs.

So who’s lending, and what’s available right now? Our engine instantly lets you see some of the lenders in the market right now. Lenders are offering term loans from £10,000 up to £500,000.

What are the fees?

Term loans are a type of business loan that work by giving cash to your business and setting fixed repayments, usually monthly. You pay back both the amount you borrowed plus interest over the life of the loan.

The two most common types of term loan repayments are either amortising loans or balloon/bullet loans. These differ on when the amount you borrowed and interest are paid back.

What security is needed?

You can go for either a secured or unsecured loan. With an unsecured loan, you can usually borrow up to a maximum of £250,000.

A secured loan means that the loan is secured against the value of an asset, just in case your business can’t keep up repayments. With a secured loan, the lending amounts can go much higher and are based on the value of the asset being secured against.

In short, secured business loans allow you to:

• Borrow more
• At a lower interest rate
• Spreading repayments over a longer period than an unsecured business loan.

This is simply because they represent a lower credit risk to a lender. If you don’t repay the loan, the lender can acquire the asset secured against it.

Revolving credit facilities

Revolving credit facilities (or RCFs) are a less well-known form of working capital, but they can be useful on their own or alongside a regular term loan. With an RCF, the lender approves a certain maximum amount (say £100,000), which you can draw on occasionally.

This is sometimes linked to an overdraft but is slightly different. That’s because RCFs are ongoing agreements between you and the lender for a fixed term, like 12 months. But they aren’t repayable on demand like an overdraft is.

The great thing about an RCF is that you don’t pay any interest on the money you’re not using as you would with a term loan, where you get the whole lump sum at the start.

What are personal guarantees?

Personal guarantees can be a headache for potential borrowers. These go beyond your business and put your personal assets on the line if you can’t repay the business loan. Lenders usually ask for these from the directors of the business applying for the loan and perhaps the major shareholders too. Make sure if you’re going to provide a personal guarantee for a business loan or any other kind of finance, that you fully understand the implications. What’s more, personal guarantees are almost always required by lenders if you’re applying for a business loan. Some alternative finance lenders may lend either without a personal guarantee or a limited personal guarantee, but this is not the norm.

At a glance

But there is a drawback. If you don’t use the money, lenders usually charge a non-utilisation fee, so they’re not making capital available to you for free! They want to get a return on it.

Example of how an RCF would work:

• A bank authorises a revolving credit facility of up to £100,000 for 12 months
• Fees include a £200 setup fee, interest payable on the money you use charged at 2.5% per month, and a non-utilisation fee of 0.05% per month; so...
• During that 12 months, you use £50,000 of the RCF for nine months and pay off the interest monthly.

What’s a RCF useful for?

They are useful if you need flexible funding. This isn’t just working capital to keep your business going smoothly but also for growth, such as running marketing campaigns or when revenue fluctuates.

Merchant cash advances

Merchant cash advances (or MCAs, also known as business cash advances) provide an upfront lump sum to your business. They take repayments based on a percentage of revenue from your business. Therefore, lenders usually look at your gross revenue when deciding how much money to advance to your company.

MCAs work particularly well if you take a lot of money in credit and debit card payments. That’s because the lenders can simply plug into your payment processing system to deduct their take – say, 10% of all sales.

The really interesting thing about MCAs is that repayments aren’t on a fixed schedule – they’re linked to your revenue. Unlike a term loan, where you’ll make regular fixed monthly payments whether your monthly turnover is high or low.

It’s not an interest rate, it’s a factor rate

MCAs are calculated by multiplying the cash advance you receive by the factor rate. This is because all of the interest is added to the amount you borrow at the start. This then gives the total amount you have to repay.

For example, say you ask for a £15,000 cash advance with a factor rate of 1.2 for 12 months. This means you would need to pay back £18,000 total (£15,000 x 1.2).

Applying for business loans

Lenders make their decisions based on your business’s overall health and suitability. They’re checking that you can pay them back – whichever type of financial product you choose, term loan, RCF or MCA.

Therefore, you need to think carefully about:

• The kind of finance that would be best for your business
• How much money would you have left at the end of each month to repay any loan, RCF or MCA you’ve taken on.

When applying for a business loan, you should be ready to send to your lender or broker the following information:

• Basic business information such as your trading name, legal entity name, company number
• What your business does, and a brief description of your activities
• Your last full filed set of annual accounts
• Six months’ worth of business bank statements
• Information about any overdraft you have in place
• Information about any other kinds of debt you have outstanding – amount, repayment dates, payback period

Right now, the market has plenty of lenders, all with slightly different attitudes to lending and the risks they’re prepared to take with a borrower.7

“This isn’t just working capital to keep your business going smoothly but also for growth, such as running marketing campaigns or when revenue fluctuates.”

FundOnion and BPCA

FundOnion.com is a leading commercial finance brokerage that helps UK small businesses identify available financing options using their unique online platform. Created by industry professionals, FundOnion provides an easy, free-to-use platform to help educate businesses about finance with high street and specialist lenders. 
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