A First Enterprise Business Loan is charged at 17% from one to five years. Our price does not change dependent on circumstances of our customer. However, if a business takes on a shorter term loan at 49% (or even more) over two years, the impact on the business is significant.
Let’s break it down using a £100,000 loan as an example:
1. Lower Total Interest Costs
- 17% Over 5 Years: The interest is far lower, even with the extended term.
- Approximate total interest: £48,539.
- Total repayment: £148,539.
- No Early Repayment Fees
- 49% Over 2 Years: The high interest rate causes the costs to skyrocket.
- Approximate total interest: £49,000 (in just two years).
- Total repayment: £149,000.
- Not always obvious what repayment fees are
2. Manageable Monthly Repayments
- 17% Over 5 Years: Repayments are spread over 60 months, reducing the monthly burden.
- Approximate monthly payment: £2,476.
- 49% Over 2 Years: Payments are compressed into 24 months, causing significant strain.
- Approximate monthly payment: £6,208.
3. Improved Cash Flow
- 17% Over 5 Years: Lower monthly payments free up cash for reinvestment in the business. This could be used for hiring staff, purchasing inventory, or expanding operations.
- 49% Over 2 Years: High payments reduce liquidity, making it harder to manage day-to-day operations or seize growth opportunities.
4. Reduced Risk of Default
- 17% Over 5 Years: Smaller payments over a longer period lower the risk of missed payments or default.
- 49% Over 2 Years: Large payments increase the likelihood of cash flow issues, putting the business at greater risk.
5. Supports Sustainable Growth
- 17% Over 5 Years: Allows businesses to grow steadily without excessive financial pressure.
- 49% Over 2 Years: High costs and repayment demands can stunt growth or even force a business to downsize.
Conclusion
While shorter loan terms might appear beneficial for quick repayment, the excessive costs and risks of a 49% loan over two years far outweigh the benefits. A 17% loan over five years offers a more sustainable, affordable, and manageable option, empowering businesses to thrive and achieve long-term success.