Unsecured Business Loans - Your Alternative Options
If you're a business owner unsure about what's your best option for an unsecured business loan, you're not alone in being uncertain. On the face of it, there's an overwhelming choice of business loan providers, along with many different types of loan. How do you know what's right for you?The last thing you want is to sign up to a finance agreement only to discover:
- It costs you more than you expected.
- It's not as flexible as you hoped.
- You can't repay early without paying penalties.
To avoid problems like these, it pays to plan ahead and to assess your options carefully.Here are some alternative forms of business finance, not all of which are unsecured loans.
The traditional business loan from your bank
Years ago bank managers were open to taking a risk on lending money to business owners. But as layers of regulation have been added over the last few years, the historic banks have become more cautious about who they will support by providing finance. Even opening a business bank account is much more difficult than it used to be.
While regulation provides important protections to both finance providers and borrowers, the historic banks often add to this bureaucracy with their own internal processes and requirements. While these loans are usually unsecured, the bank wants some form of personal guarantee from the directors.
That said, every year businesses raise working capital by borrowing millions of pounds from the long-established banks, usually through fixed-term loans.
Borrowing from your friends and family
For many business owners, particularly those launching a new business, friends and family are the initial source of finance. This has its advantages, including:
- Often at a lower cost than a commercial rate of interest.
- Repayment options can be more flexible.
- Any interest or fees are kept inside your friends and family community.
While this approach offers a host of benefits, there are also potential risks to this informal approach to business finance. The lender could suddenly need some or all of their money back to cover an unanticipated need, or the business may not be able to meet the agreed repayments.
Personal relationships between friends and family can be put under pressure through these arrangements, if they are not managed well or if the business fails to perform as expected.
Asset finance
You could fund the purchase of a specific business asset - such as a building or a vehicle - using asset finance. This is a loan that's linked specifically to that asset and is usually secured against it. Should you fail to make the agreed repayments, the lender has legal rights to recover some of their money by taking control of the asset.
Secured loans, such as these, often take a little longer to set up because the process needs to include valuation of the asset and preparation of additional documentation. Your business can also use asset finance to release capital from an asset it already owns. Many finance providers are willing to advance cash against the value of an asset, even when it's been in use for a while.
The funding is repaid from future income that asset helps the business to generate.
Invoice finance or merchant cash advances
Both invoice finance and merchant cash advances are methods of boosting your working capital based on the value of your sales. Rather than receiving a lump sum of cash, as you do with a loan or similar form of finance, you get a rolling injection of smaller amounts of cash, in line with your sales. As turnover grows, the value of these injections can grow.
Invoice finance is suitable for businesses that sell on credit. When you raise an invoice that's due in, say, 30 days, the invoice finance provider pays you a high percentage of the value of the invoice. You benefit by effectively being paid a few weeks in advance - which improves your cashflow.
A merchant cash advance is more appropriate where you sell a considerable amount through credit and debit cards. You can get an advance based on the level of card sales you've enjoyed in the past.
Both these forms of finance help to improve your cashflow, but they're not designed to raise the large amount of capital you may need to invest in a new business growth project.
Investment finance
Whether it's through an angel investor, or venture capitalists, or some other arrangement, investment finance is where someone puts money into your business in return for a share of ownership. This means it's not a business loan, but typically a longer-term commitment with the intention of helping you to grow the business.
The finance may come with additional support, such as business advice and mentoring from someone with greater experience.
The investor typically expects to get their money back, and more, when the business has grown in value and their share is worth more. This may occur when you sell the business, which allows all the investors to capitalise on the money they put in.
The benefit of investment finance is that there are often no regular repayments to budget for, and the cash could come with additional support. The downsides include the dilution of ownership, and the possibility that the investor wants some element of control over how the business is operated.
Crowdfunding
The digital revolution has made it much easier for businesses to raise finance from the wider community, through crowdfunding hubs. These hubs allow people to invest often a relatively small amount of capital into a project. These amounts are aggregated together, giving the business a sizeable fund it can invest in growth.
Crowdfunding comes in various forms. It's popular with startups, particularly those who can establish a connection with a community of people interested in seeing particular ideas turned into viable products, such as video games or new technologies. Peer-to-peer funding networks also work on crowdfunding principles, but are generally more structured and offer more protection to those putting their money in.
Unsecured business finance from Qardus
If you're a business owner, if that business is profitable and if you're serious about growing it, we want to hear from you.
We've supported a wide range of businesses through our unsecured finance product. It's a community-based alternative to an unsecured business loan, and it's rooted in an ethical approach to commercial finance.
If you're considering taking out a business loan and you're open to exploring something that gives you all the same benefits and flexibility, and is also competitively priced, please get in touch with us today.
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The investment term for this offer has been successfully concluded
As the investment term for this facility has been successfully concluded we wanted to present some highlights of this offer to investors:
The problem: Dara 77 Ltd, a dental practice, was seeking funds for working capital, to purchase dentistry equipment, and refinance an expensive mycashloan of c.£30,500 at c.50% APR.
The solution: In order to refinance the expensive loan at the earliest possible time and meet their working capital requirements, the company needed a timely injection of business finance. Dara 77 Ltd hence sought to raise a total of up to £60,000 of Sharia-compliant finance on the Qardus platform.
The outcome: The company had a two-year unsecured amortizing finance facility with Qardus, giving it the capital required to support their next phase and pay-off the expensive loan. The funds were drawn down on January 28, 2021.
Final settlement: Dara 77 Ltd made a voluntary early prepayment for the full outstanding balance of the financing facility on May 12, 2022. The Director used the extra cash proceeds from the sale of her home to pay off all her debts.
Payments to investors:Over the term of the facility, investors received their scheduled profit and principal payments each month.
Returns to investors: Investors made a return of 16.2% per year over the term of the facility. An investment in this offer made a return on investment (ROI) of 20.88%andXIRR of 25.31%upon successful conclusion of the investment term. The XIRR function calculates the Internal Rate of Return (IRR) by assigning specific dates to each individual cash flow.
“Excellent service from start to finish, comprehensive and friendly staff that make the full process feel easy. I was seeking growth finance and contacted Qardus and within 5 business days, I had an offer and funds in the bank. Highly recommend, thank you again Qardus”Director, Dental Practice
“This business is a prime example of a UK SME which has strong social impact credentials and that our investors are keen to support. This was also the first female owned business on our platform that got funded in 6 hours! In addition to providing working capital headroom, the funding will also be used by the business to refinance an expensive loan at c.50% APR. With this financing facility, we look forward to watching this business grow”Hassan Daher, CEO & Founder, Qardus Limited
Please remember that when investing in the offers available on the Qardus platform your capital is at risk and returns are not guaranteed. Past performance is not indicative of future results.
Nothing good can be said about a global pandemic and to even look for a silver lining can at times just feel wrong. However, as humans we are programmed to look towards the future and to make the best of changing situations in our lives and in the world around us.
While the shift towards remote work is perhaps the most notable and obvious lasting social change brought on by COVID-19 the data clearly shows that there was also an equally seismic change in people’s spending habits over the past two years. For millions of people the forced reduction in travel, meals out and just about everything else we consider to be fun in life has lead to a substantial increase in their bank balance and household savings.
Research by the Institute for Fiscal studies shows that the household savings rate peaked at 23% during 2020.
Put simply, for every pound that people had leftover after bills, rent and other essentials, households have on average been saving almost a quarter of it. This has been an unexpected yet very pleasant surprise for anyone looking to buy a house, put money aside for their child’s future or even just to take a long overdue holiday in 2022.
What is perhaps even more surprising is that people haven’t been showing any signs of ‘blowing it’ now that pandemic restrictions are easing up and workplaces, entertainment venues and restaurants are opening their doors to the public.
There is a clear trend it seems to not let this once in a lifetime financial windfall go to waste, yet for many people who have for years struggled to save anything at all there is also uncertainty about what to do with their newfound ‘nest egg’ and how to best use it to help them achieve their financial goals.
3 Ways To Make The Most Of Your Pandemic Savings
1) PUT YOUR MONEY TO WORK
Having money stashed away under your mattress or in a savings account is nice and can give you peace of mind about your financial security, but it doesn’t actually help you to build a better, brighter future for you and your loved ones. The average savings account with a high street bank typically pays you an interest rate of less than 1% per year. That means for every £1 you hand over and let them use for loans to other customers, you earn 1 single penny each year. This is not great, especially when you stop and think about how much banks earn on those loans they make with your savings, as the interest rates they charge for overdrafts, credit cards and personal loans can often be as high as 10% or even 25% APR.
In the past it was simply not possible to do anything else than keep your money at the bank, but the rapid growth of new innovative FinTech platforms means that halal investing options are now more accessible than ever. Our investors have earned over £285,000 through their investments on our platform, through lending their money directly to verified, high growth UK businesses that are aligned with their ethics and values. By cutting out the middleman - your bank - and letting our smart technology do the hard work for you, it is truly possible not just to enjoy the security of the money you’ve saved up during the pandemic, but to actually make it work for you!
The compounding nature of rates mean your modest savings can turn into something that you can truly use to build a brighter future for you and your family.
2) HELP PEOPLE AND SOCIETY
Having money is good, having more money is even better, but the hardships endured by all during the recent pandemic have truly brought life to the phrase - ‘money can’t buy you happiness’.
The pandemic brought out the best in our society, as people worked together both on the frontline in hospital A&E departments, as well as on the ‘home front’, delivering food to elderly neighbours who could not leave their homes for months on end. This is another trend that looks set to continue, as people seek out different ways to make the world a better place one day at a time. Investing is no exception, as when you make values based, ethical investment choices you can not only grow your own future, but help others to build theirs at the same time.
Unlike your savings deposited in a low-yield high street bank’s vault, on platforms like Qardus you can choose where your money goes, who you invest in and for what purpose. We only allow verified, robust businesses to obtain funding on our platform, to mitigate the risk of your investments, and to increase the potential returns on your money. However, unlike other p2p lending platforms we actually allow you to choose which specific businesses you want to fund and invest in, so that you can be sure your money is being invested according to your beliefs and values.
Each investment opportunity on our platform provides you with not only the financial details about the business you are funding, but also their story so you can get to know the people behind the business and make investment choices that make the world a better place £1 at a time.
3) PROTECT YOUR FAMILY AND YOUR FUTURE
If the events of the past 24 months have taught us anything it is that we all need to do a better job of planning for the unexpected and ensure we have the financial resilience to live happily during the good times and the bad.
In fact over 8 million people have no savings at all to rely on in the event of illness, job loss or anything else life might throw at them.
While investing can seem risky and may not be something you have done before it doesn’t have to be. We have created the technology, investment screening processes and legal contractual structures to allow you to invest with confidence in a diverse portfolio of ethnical opportunities with high returns. By investing regularly and diversifying your investments you can grow your ‘rainy day savings’ into a solid financial future for you and your family.
WHAT IS A PENSION?
A pension is effectively a savings plan that is long-term. It is designed to help you save for your retirement and ensure that you can maintain your standard of living once you are no longer working, without having to worry about finances and bills.
Halal pensions are a Sharia compliant investment option for Muslims who do not want to compromise on their religious beliefs.
Halal Pensions
A halal pension is long-term savings plan that is compliant with Islamic rules relating to saving. Halal pensions are Sharia compliant.
Muslims are required to ensure that their money is managed and invested in a way that does not contravene the Sharia rules relating to finances, and this is why they look for halal pension products.
Difference Between A Conventional Pension And Halal Pension
As mentioned above, halal pensions are specifically geared towards Muslims, but can be utilised by anyone.
Halal pensions are different from traditional pension schemes as they each have different underlying principles and different investment strategies.
Many conventional pension schemes are not compliant with Sharia law and therefore not acceptable to Muslim savers.Halal pensions must have the following elements:
- No riba (interest)
- No maysir (gambling)
- No gharar (uncertainty)
Most traditional pension schemes invest in schemes that will not meet the above requirements. However, halal pension schemes have a Sharia compliant investment strategy. This means that the funds should be invested in assets that are Sharia compliant including real estate/ property and Islamic bonds.
In addition, halal pensions have a different management and market approach than traditional pension schemes. Halal pensions have to be managed in accordance with Islamic principles. These principles centre on the concepts of social and ethical responsibility which we will examine below.
Conventional pensions are more driven and focused on generating revenue and profits. The wealth and revenue growth of conventional pensions are often generated from risky or interest-based investment strategies.
Key Features Of Halal Pensions
If you work in the public sector and pay into a workplace pension it is very likely that you have a defined benefit pension. You should ask your employer for information relating to your pension so you can assess whether it is a defined benefit pension. If it is, then the pension should be halal.
Always check to see what fund your pension monies are located in.The main features of a halal pension include the following:
- Compliance with Islam and Sharia rules: this is fairly obvious but any pension you have must not contravene any Sharia rules about finances. Whilst you have a choice about which pension fund to invest in, it is your responsibility to make sure you seek expert opinion and advice about the investment and the operations of the scheme.
- Prohibited investment: for a pension to be deemed to be halal, investors need to make sure the monies are not invested in haram industries (gambling, porn, alcohol etc)
- No interest: this is one of the underlying concepts in Islamic finance. Sharia rules and guidelines strictly prohibit the payment of receipt of any form of interest. You should be sure to avoid haram bonds or any other investment instrument that relies on interest.
- Ethics: investors are faced with the obligation to act in an ethical and socially responsible way. This means that investments must align with the core Islamic value of transparency and fairness. Investments must adhere to Sharia rules and guidelines relating to finances.
Ethical And Social Responsibility
Halal pensions are designed to ensure that any investment is socially responsible and ethical. This is a fundamental principle of Islamic finance and must be adhered to.
Anyone who manages a halal pension needs to ensure that they do not invest in any industry, economy, market or product that would deemed to be unethical or haram under Islamic rules.
This means the pension monies cannot be invested in industries that are involved with gambling, porn, alcohol, and any other activities not permissible under Sharia rules.
Any profit or return from investment in these industries is haram
Importance Of Having A Halal Pension For Muslims
For Muslims, having a pension is an essential part of ensuring that they plan for their future.
Not only will having a pension provide you with an income for your future, but ensuring the pension is halal will increase its value for those who wish to remain Sharia compliant.
Workplace Pensions
In the UK, you should have a workplace pension, and your employer is legally required to contribute to your pension fund.
In addition to this, it is always a good idea to think about having a private pension. The main benefit of this, other than having a second pension pot, is that you can direct which pension fund to invest in and you have more of a say about where your pension is invested.
Having a halal pension means you have a savings plan that aligns with the ethical and religious values of Islam.
Key Benefits Of Having A Halal Pension
Some of the benefits of having a halal pension include the following:
- Compliance with Sharia law
- Alignment of personal values with financial planning strategies
- Accessibility to ethical investments
- Saving for retirement
Halal Pensions In The Uk
The popularity of halal pensions is growing in the United Kingdom and the rest of the world. Not only are they aimed at Muslims looking for Sharia compliant saving and pension plans, but they also attract ethical investors.
The number of banks and financial organisations offering halal pensions is increasing. Before approaching any organisation offering halal pension products you should always satisfy yourself that they are sufficiently registered and regulated by the FCA. You should also make sure the bank is fully aware of the rules relating to Islamic finance.
Please note that Qardus Limited does not provide financial advice.
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