Doing Business Down Under: An Overview of Business Loans in UK

Doing business in the UK can be a lucrative opportunity for entrepreneurs and businesses looking to expand their operations. In order to fund their growth or cover any financial gaps, businesses often need to rely on business loans. Understanding the business loan landscape in the UK is crucial for making informed financial decisions.

Before diving into the details of types of business loans, eligibility criteria, and loan application process, it’s important to have a clear understanding of the current state of the business environment in the UK. The ever-changing economic landscape, Brexit implications, and market trends play a significant role in determining the availability and terms of business loans.

To gain insights into the current state of the business environment in the UK, it is essential to analyze factors such as market conditions, industry growth, government policies, interest rates, and overall economic health. Keeping these aspects in mind will help businesses align their loan requirements with the prevailing economic climate and make informed decisions when it comes to securing business loans in the UK.

Understanding the Business Landscape in the UK

Understanding the Business Landscape in the UK is crucial for entrepreneurs and businesses looking to establish themselves. Here are key factors to consider:

1. Market Research: Conduct thorough market research to understand current trends, competition, and demand for your product or service. This will help you identify opportunities and make informed business decisions.

2. Legal and Regulatory Environment: Familiarize yourself with the legal and regulatory framework in the UK. Ensure compliance with tax laws, employment regulations, data protection laws, and industry-specific regulations. Consulting legal experts can provide valuable guidance.

3. Business Culture: The UK business culture emphasizes professionalism, punctuality, and good communication. Building strong relationships and networking within the industry is important. Understanding cultural norms and etiquette will help you navigate business interactions effectively.

4. Financial Considerations: The UK has a well-established financial sector, making it relatively easy to access loans, venture capital, and other funding options. Research different financing options and assess their terms, interest rates, and repayment terms.

5. Workforce and Skills: The UK has a highly skilled and diverse workforce. Evaluate talent availability in your industry and consider the costs of hiring and retaining employees. Stay updated on immigration policies that may impact recruitment of overseas workers.

Pro-tip: Building a strong network of business contacts can be beneficial in the UK. Attend industry events, join professional organizations, and engage with local business communities to expand your network and gain valuable insights. Your network can offer collaborations, partnerships, and resources to boost your business growth.

By understanding the business landscape in the UK, entrepreneurs can make informed decisions, navigate challenges effectively, and position their businesses for success.

What is the Current State of the Business Environment in the UK?

The current state of the business environment in the UK is dynamic and ever-evolving. It offers a favorable regulatory environment for businesses, with policies promoting entrepreneurship, innovation, and foreign investment. Tax incentives, grants, and support programs are available for startups and small businesses. The UK has a strong legal system and well-developed infrastructure necessary for efficient business operations.

The UK has a highly skilled and educated workforce, thanks to prestigious universities and research institutions. This ensures that businesses have access to qualified professionals who can contribute to their growth and success.

The UK’s financial sector provides businesses with various financing options, such as traditional bank loans, government-backed loans, peer-to-peer lending, and online business loans. These options cater to different business needs and support growth and expansion.

The UK maintains strong global trade relationships, facilitating international operations for businesses. It is a member of the World Trade Organization and has favorable trade agreements with various nations, promoting the smooth flow of goods and services.

It’s important to note that the business environment in the UK faces challenges, particularly due to the ongoing uncertainty surrounding Brexit. Changes in regulations, trade policies, and access to the European market may impact businesses in different ways. It’s crucial for businesses to stay informed, adapt, and seize opportunities while mitigating risks.

Types of Business Loans Available in the UK

Looking to secure funding for your business in the UK? In this section, we’ll dive into the different types of business loans available to you. From traditional bank loans to government-backed options, peer-to-peer lending, and online business loans, we’ll explore the diverse landscape of business financing. Get ready to discover the key features, benefits, and considerations for each loan type, so you can make an informed decision when it comes to growing your business.

Traditional Bank Loans

Traditional Bank Loans are a popular financing option for businesses in the UK. When considering Traditional Bank Loans, there are a few key points to keep in mind. These loans offer higher loan amounts compared to other types of loans. The specific amount that can be borrowed depends on the business’s financial history, creditworthiness, and the purpose of the loan.

In terms of interest rates, banks usually provide competitive rates for their loans. The interest rate is determined by factors such as the business’s credit score, loan term, and overall risk associated with the loan.

Traditional Bank Loans also have fixed repayment terms. Borrowers are given a set period of time to repay the loan in monthly installments. The duration of the repayment term depends on the loan amount and the agreement made with the bank.

It is important to note that banks generally have stricter credit requirements for their loans. They thoroughly assess the borrower’s credit history, business financials, and may even ask for collateral in some cases. Collateral can be in the form of assets like property, equipment, or inventory. Providing collateral gives the bank assurance that the loan will be repaid.

To effectively navigate the process of obtaining Traditional Bank Loans, it is recommended to research different banks and compare their offerings, interest rates, and terms. It is also crucial to ensure that your business financials are in order and that you have a good credit history. Be prepared with all the necessary documents, such as financial statements, tax returns, and business plans. Seeking professional advice from a financial advisor or accountant can be advantageous in the loan application process and when negotiating favorable terms. Make sure to thoroughly review the loan agreement and understand all terms and conditions before signing.

Government-Backed Loans

Government-backed loans in the UK have numerous advantages for businesses. Here are some key points to consider:

1. Government support: These loans receive support from the UK government, which gives lenders a sense of security and makes it easier to obtain funding.

2. Lower interest rates: Government-backed loans often offer lower interest rates compared to traditional bank loans, resulting in cost savings for businesses.

3. Flexible terms: These loans provide longer repayment periods and more lenient eligibility criteria, making them particularly beneficial for small businesses or startups without an extensive credit history or significant assets.

4. Increased access to funding: Government-backed loans aim to enhance funding access for businesses operating in vital sectors that contribute to economic growth.

5. Loan size: The size of the loan varies depending on the program and the specific needs of the business. Some programs offer a percentage of project costs, while others have set loan limits.

6. Application process: Applying for these loans involves completing an application form and submitting supporting documents. The government assesses eligibility based on factors such as turnover, credit history, and the purpose of the loan.

7. Loan repayment: It is important to note that government-backed loans are not grants or free money. They must be repaid, often with interest. Therefore, businesses should carefully evaluate their repayment capabilities before applying for such loans.

To make the most of government-backed loans, consider the following suggestions:

• Research industry-specific government-backed loan programs.
• Compare different loan programs to find the most suitable option.
• Seek advice from financial advisors or business consultants to make well-informed decisions regarding government-backed loans.

Peer-to-Peer Lending

Peer-to-peer lending, also known as P2P lending, has emerged as a popular alternative to traditional bank loans for business financing in the UK. When considering this funding option, there are several key points to keep in mind:

1. P2P lending platforms act as intermediaries, connecting potential borrowers directly with lenders.

2. These platforms create an online marketplace, where businesses can submit funding requests while lenders can choose to invest in specific loan opportunities.

3. The interest rates associated with P2P loans can vary depending on factors such as the borrower’s creditworthiness, the term of the loan, and the chosen platform. Typically, interest rates range from 6% to 20%.

4. Speed and convenience are notable advantages of P2P lending. Unlike traditional banks, borrowers can often receive the funds they need within a matter of days.

5. P2P loans can serve various purposes, including fulfilling working capital needs, supporting business expansion, facilitating equipment purchases, or consolidating existing debts.

6. Repayment terms for P2P loans are flexible, spanning from a few months to several years, allowing borrowers to choose a timeframe suitable for their business needs.

7. While P2P loans may not always require collateral, lenders will still evaluate the borrower’s creditworthiness before making a decision.

8. Businesses considering P2P lending should carefully review the terms, fees, customer reviews, and requirements of the platform they are considering.

9. It is crucial for borrowers to communicate effectively and meet their repayment obligations in order to maintain a favorable credit standing and a strong relationship with the P2P lending platform.

Fact: The P2P lending industry has experienced significant growth, with the size of the UK market exceeding £10 billion.

Online Business Loans

Online business loans can be a convenient and efficient option for financing your business. Here are the key factors to consider when applying for online business loans:

1. Convenience: Apply for a loan online from the comfort of your office or home, eliminating the need to visit a bank branch.

2. Quick approval: Online loans often have faster approval times compared to traditional bank loans, enabling you to access funds promptly.

3. Flexible terms: Online loans may offer more flexible repayment schedules, allowing you to choose terms that best suit your business’s financial situation.

4. Competitive rates: To secure the best deal for your business, it is essential to compare rates from different lenders before finalizing your loan application.

5. Accessibility: Online loans are designed to be more accessible to small businesses, providing them with equal opportunities for growth and success.

6. Streamlined application process: Thanks to the streamlined online application process, you will need to submit fewer documents compared to traditional loan applications.

7. Specialized lending: Some online lenders specialize in serving specific industries, ensuring that you receive expert guidance and support tailored to your business’s unique needs.

8. Customer reviews and reputation: Prioritize researching the reputation and customer reviews of lenders before proceeding with any loan offers. This will help you gain insights into their credibility and reliability.

By considering these factors, you will be able to make an informed decision when obtaining online business loans. Carefully reviewing the loan terms and conditions before accepting any offers is essential to ensure they align with your business goals and financial capabilities.

Eligibility Criteria for Business Loans in the UK

When considering a business loan in the UK, it is important to understand the eligibility criteria set by lenders. Meeting these criteria is crucial as it increases your chances of securing a loan. Here are some key factors that you should consider:

– Credit score: Lenders evaluate your credit score to determine your creditworthiness. A higher score indicates lower risk and makes it easier to obtain a loan.

– Business age: Lenders prefer businesses that have been established for a significant period of time and have a proven track record. Most lenders require at least 12 months of operation.

– Annual revenue: Lenders assess your business’s annual revenue to determine its financial stability. A higher revenue demonstrates the ability to generate consistent income and repay the loan.

– Collateral: Some lenders may require assets such as property or equipment as security for the loan.

– Business plan: Having a well-prepared business plan that outlines your objectives, market analysis, financial projections, and repayment strategy enhances your eligibility.

– Debt-to-income ratio: Lenders take into consideration your debt-to-income ratio to assess your ability to handle additional debt. A lower ratio indicates a better financial position and increases your eligibility.

– Legal requirements: It is important to ensure that your business operates legally and has all the necessary licenses, permits, and registrations. Lenders may require proof of compliance.

Meeting these eligibility criteria is crucial when seeking a business loan in the UK. It is important to note that each lender may have specific requirements, so it is advisable to research and compare lenders to find the best fit for your needs.

Fact: According to a study conducted by UK Finance, loans to small businesses in the UK totaled £68.8 billion in 2020.

What Factors Do Lenders Consider When Assessing Loan Eligibility?

Lenders consider a variety of factors when assessing loan eligibility. Understanding these factors can greatly increase the chances of approval and help secure the necessary financing. So, what factors do lenders look at? Here’s a breakdown:

1. Credit history: Lenders carefully review a borrower’s credit history to evaluate their financial reliability. They take into account credit scores, payment history, outstanding debts, and any previous loan defaults. Having a strong credit history significantly improves the likelihood of loan approval.

2. Business revenue and profitability: Lenders analyze a business’s revenue and profitability to determine its ability to generate enough cash flow for loan repayment. Historical financial statements, tax returns, and bank statements are often considered to assess financial stability.

3. Debt-to-income ratio: Lenders examine the business’s debt-to-income ratio to understand how well it can handle additional debt. A lower ratio indicates better financial health and a higher probability of loan approval.

4. Collateral: Lenders may require collateral as a form of security for the loan. They evaluate the value and type of collateral offered by the borrower, which provides reassurance in case of loan default.

5. Industry and market conditions: Lenders assess the industry and market conditions in which the business operates. They consider factors such as the business’s competitiveness, growth potential, and economic outlook to evaluate the level of loan risk.

6. Business plan: Lenders carefully evaluate a business’s plan and strategy to assess its feasibility and profitability. A well-developed business plan demonstrates the borrower’s commitment and ability to succeed, significantly increasing the likelihood of loan approval.

7. Management team: Lenders evaluate the experience and expertise of the management team. Strong leadership and a skilled team inspire confidence that the business is well-managed and capable of repaying the loan.

8. Loan purpose: Lenders take into account the purpose of the loan and how it aligns with the business’s needs and goals. Having a clear and well-defined loan purpose, whether it’s for expansion plans or working capital requirements, enhances the chances of approval.

By thoroughly understanding these factors, borrowers can effectively prepare their loan applications and address any potential concerns that lenders may have. It is crucial to present a strong case that demonstrates the business’s financial stability and future prospects in order to improve the likelihood of securing a business loan.

What Documents Are Typically Required for a Business Loan Application?

When applying for a business loan in the UK, lenders typically require important documents to assess your loan eligibility and make an informed decision. The following documents are typically required:

1. Business Plan: A comprehensive plan outlining your company’s goals, strategies, financial projections, and market analysis.

2. Financial Statements: Includes your company’s balance sheet, income statement, and cash flow statement, providing information about your company’s financial health and performance.

3. Bank Statements: Several months of bank statements to assess your company’s cash flow and financial stability.

4. Tax Returns: Business tax returns from the past few years to verify your company’s income and tax obligations.

5. Legal Documents: Incorporation documents, licenses, permits, and any relevant contracts or agreements. For more information on business loans in the UK, check out Doing Business Down Under: An Overview of Business Loans in UK.

6. Personal Identification: Personal identification documents, such as passports or driver’s licenses, to verify the identities of business owners or key individuals involved in the loan application.

7. Collateral Documentation: If applying for a secured loan, provide documentation of the collateral offered, such as property titles or asset appraisals.

8. Loan Application Form: Complete the lender’s loan application form, providing details about your company, loan amount, and purpose of the loan.

These documents are typically required for a business loan application in the UK. Specific requirements may vary depending on the lender and loan type. Review the lender’s requirements carefully and promptly provide all requested documents accurately. Having the necessary documents ready in advance can expedite the loan application process and enhance your chances of approval.

How to Apply for a Business Loan in the UK

When applying for a business loan in the UK, follow these steps to ensure a smooth and successful application:

1. Research loan options: Research different lenders and loan options in the UK. Compare interest rates, repayment terms, and eligibility criteria to find the best loan for your business.

2. Prepare necessary documents: Gather the required documents for your loan application, such as financial statements, business plans, profit and loss statements, tax returns, and other relevant financial information.

3. Calculate loan amount: Determine the exact amount of loan you need for your business. Be specific and accurate in your calculations as it will impact the lender’s decision.

4. Check eligibility criteria: Make sure you meet the eligibility criteria set by the lender before proceeding with the application. This may include factors like credit score, business history, and annual revenue.

5. Fill out the application: Complete the loan application form provided by the lender. Provide accurate information about your business, including its legal structure, industry, and purpose of the loan.

6. Include a detailed business plan: Attach a well-prepared business plan to your loan application. This plan should outline your business goals, market analysis, marketing strategies, financial projections, and repayment plan.

7. Submit the application: Once you have completed all the necessary forms and gathered the required documents, submit your loan application to the lender. Double-check everything for accuracy and completeness.

8. Follow up on the application: After submitting the application, follow up with the lender to confirm they have received it and to inquire about the processing timeline. Provide any additional information or documentation proactively if required.

9. Wait for a decision: The lender will review your application, conduct a credit check, and assess your business’s financial health. Wait for their decision, which can take a few days to several weeks.

10. Review the loan offer: If your loan application is approved, carefully review the loan offer, including the interest rate, repayment terms, and any additional fees or charges. Make sure it aligns with your needs and financial capabilities.

11. Accept the loan: If you are satisfied with the loan offer, accept it by signing the necessary documents. Be aware of any conditions or requirements set by the lender before the funds are disbursed.

12. Manage loan repayments: Once you receive the loan, effectively manage your repayments. Make timely payments according to the agreed schedule to maintain a good relationship with the lender and avoid penalties.

By following these steps, you can confidently navigate the process of applying for a business loan in the UK and increase your chances of obtaining the financing you need for your business.

Understanding the Loan Terms and Conditions

Photo Credits: Bizzloans.Co.Uk by Anthony Thomas

When it comes to understanding business loans, one of the crucial aspects to grasp is the terms and conditions involved. In this section, we’ll delve into the nitty-gritty details, exploring interest rates, repayment periods, and the differences between secured and unsecured loans. Get ready to uncover key insights that will help you navigate the world of business lending with confidence!

Interest Rates

When considering a business loan in the UK, it’s important to compare interest rates offered by different lenders. Here are some key points to keep in mind:

• Interest rates can vary significantly between lenders. Compare multiple loan offers to find the most favorable rate for your business.
• The interest rate on a business loan is the percentage of the loan amount that you need to pay back as interest over the loan term.
• When comparing interest rates, understand whether they are fixed or variable. A fixed interest rate remains the same throughout the loan term, providing stability in monthly repayments. On the other hand, a variable interest rate may fluctuate over time, depending on market conditions.
• Interest rates are determined by factors such as the lender’s assessment of your creditworthiness, the loan amount, the loan term, and the type of loan.
• A good credit score can secure a lower interest rate, indicating lower risk for lenders. A poor credit score may lead to higher interest rates or loan rejection.
• The interest rate can also depend on the type of loan. Traditional bank loans usually offer competitive rates, while government-backed loans may have favorable terms and lower rates. Peer-to-peer lending platforms and online business loans may have varying interest rates based on their criteria.
• Carefully review the terms and conditions regarding interest rates, including potential fees or additional charges.
• Understanding and comparing interest rates from different lenders allows you to make an informed decision aligning with your business’s financial goals and affordability.

Remember, interest rates can significantly impact the overall cost of borrowing. Research and find the best interest rate for your business is crucial.

Repayment Period

The repayment period for a business loan in the UK is the time you have to repay the loan, including interest and fees. Here are some key points about the repayment period:

1. Loan term: The repayment period, or loan term, varies depending on the type of loan and lender. It can range from months to years.

2. Flexibility: Some loans offer flexible repayment periods, allowing you to choose a term that suits your business needs and cash flow.

3. Fixed or variable: The repayment period can have a fixed or variable interest rate. A fixed rate means the repayment amount stays the same, while a variable rate can fluctuate.

4. Impact on monthly payments: The length of the repayment period affects your monthly payments. A longer period means lower payments but more interest over time. A shorter period means higher payments but savings on interest.

5. Consider your business’s financial situation: When choosing a repayment period, consider your business’s cash flow and ability to make regular payments.

6. Early repayment options: Some lenders allow early repayment without penalties. This can be beneficial if your business experiences increased profits and you want to pay off the loan sooner.

Jane, a small business owner, chose a five-year repayment period for her loan. Although she initially wanted a shorter period to minimize interest costs, she realized the higher monthly payments would strain her cash flow. By opting for a longer period, Jane successfully managed her payments and grew her business without financial stress.

Secured vs Unsecured Loans

When it comes to business loans in the UK, there are two main types: secured and unsecured loans. Here is the breakdown:

1. Secured Loans:
   • Backed by collateral, such as property or equipment, secured loans reduce the lender’s risk.
   • Secured loans generally have lower interest rates compared to unsecured loans because the lender has a tangible asset to fall back on if the borrower defaults.
   • The amount you can borrow with a secured loan is typically higher since the collateral provides added security for the lender.
   • If you fail to repay the loan, the lender may seize and sell the collateral to recover their losses.
   • Secured loans are ideal for businesses that need a larger amount of money, have valuable assets to use as collateral, and are confident in their ability to repay the loan.
2. Unsecured Loans:
   • Unlike secured loans, unsecured loans do not require collateral. They are granted based on the borrower’s creditworthiness and financial history.
   • Interest rates for unsecured loans are generally higher compared to secured loans due to the higher level of risk without collateral.
   • The loan amount for unsecured loans is usually lower compared to secured loans since there is no collateral to secure the funds.
   • In the event of non-payment, the lender cannot seize any specific assets. They may take legal action and pursue other means to recover the debt.
   • Unsecured loans are suitable for businesses that do not have significant assets to use as collateral or prefer not to risk their assets.

When choosing between secured and unsecured loans for your business, evaluate your financial situation, the purpose of the loan, and your level of risk tolerance. Secured loans provide more favorable terms and higher loan amounts, but they require collateral. Unsecured loans offer quicker access to funds and are less risky in terms of asset seizure but come with higher interest rates and lower loan amounts. Consider your needs and capabilities before deciding on the type of loan that best suits your business.

Tips for Choosing the Right Business Loan in the UK

Tips for Choosing the Right Business Loan in the UK

Choosing the right business loan in the UK is crucial for business success and growth. Here are some tips to help you make the right decision:

1. Assess your needs: Before applying for a business loan, determine why you need the funds. Whether it’s for expansion, equipment purchase, or cash flow management, understanding your needs will narrow down the options.

2. Evaluate creditworthiness: Lenders assess creditworthiness before approving a loan application. Check your credit score and history to ensure they are in good standing. A higher credit score increases approval chances and may result in better loan terms.

3. Research loan options: Different types of business loans are available in the UK, such as term loans, lines of credit, and invoice financing. Research and compare lenders to find ones that offer loans aligned with your needs and preferences.

4. Consider interest rates and fees: The interest rate is a crucial factor when choosing a business loan. Compare rates offered by different lenders to find the most competitive option. Also, be aware of any fees associated with the loan, such as origination fees or early repayment penalties.

5. Evaluate loan term and repayment flexibility: Consider the loan term that works best for your business. A longer term may result in lower monthly payments, but it also means paying more in interest over time. Inquire about repayment flexibility, such as the option for early repayments without penalty.

6. Read terms and conditions: Before finalizing a loan agreement, carefully read and understand all the terms and conditions. Pay attention to details like repayment schedules, collateral requirements, and additional clauses impacting your business.

7. Seek professional advice: If uncertain about loan options or terms and conditions, seek guidance from a financial advisor or business consultant. They can offer valuable insights to help you make an informed decision.

8. Prepare necessary documentation: When applying for a business loan, gathering financial statements, bank statements, and business plans is necessary. Ensure you have all documents ready to streamline the loan application process.

9. Consider customer reviews and reputation: Research the reputation of lenders you’re considering. Look for customer reviews and testimonials to gauge service quality and reliability.

By considering these tips, you can make an informed decision and choose the right business loan in the UK that suits your needs and helps your business thrive.

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– The U.K. offers entrepreneur-friendly policies, including special entrepreneur visas and lower tax rates. (Source: [Wolters Kluwer](https://www.wolterskluwer.com/en/expert-insights/doing-business-in-the-uk))
– Consistent regulatory oversight is provided across key sectors, and businesses must comply with local laws and regulations. (Source: [Wolters Kluwer](https://www.wolterskluwer.com/en/expert-insights/doing-business-in-the-uk))
– Intellectual property protections are similar to the U.S., but Brexit may impact IP laws in the U.K. (Source: [Wolters Kluwer](https://www.wolterskluwer.com/en/expert-insights/doing-business-in-the-uk))
– The U.K.’s corporate tax rate is competitive and scheduled to drop further in 2020. Tax incentives are also available for overseas investment and R&D. (Source: [Wolters Kluwer](https://www.wolterskluwer.com/en/expert-insights/doing-business-in-the-uk))
– Risks and considerations include the potential consequences of Brexit, KYC banking requirements, and data protection standards. (Source: [Wolters Kluwer](https://www.wolterskluwer.com/en/expert-insights/doing-business-in-the-uk))

Frequently Asked Questions

What is a government business loan in the UK?

A government business loan in the UK is a form of funding provided by accredited lenders with support from the government. It can be used to start, grow, or expand a business, and is repaid in installments with interest.

What are the different government business loan options available in the UK?

The UK offers various government business loan options, including the Recovery Loan Scheme (RLS), the Greater London Investment Fund (GLIF), the Northern Powerhouse Investment Fund (NPIF), the Midlands Engine Investment Fund (MEIF), the Cornwall & Isles of Scilly Investment Fund (CIOSIF), the Scottish Growth Scheme, the Development Bank of Wales, the Northern Ireland Small Business Loan Fund (NISBLF), and the Start Up Loans scheme.

How do government business loans differ from grants?

Government business loans need to be repaid with interest, while grants do not require repayment. Loans are ideal for businesses that can handle debt and have a steady cash flow, while grants are better suited for businesses that need upfront funds without the burden of repayment.

What are the eligibility criteria for obtaining a government business loan?

Eligibility criteria for government business loans vary depending on the specific loan scheme. Common factors considered include credit scores, business plans, industry risks, and meeting specific requirements set by each loan scheme.

What are the risks associated with government business loans?

Risks associated with government business loans include the need for repayment with interest, potential penalties for late payments, the responsibility of meeting loan requirements, and the impact of financial difficulties on the business’s ability to repay the loan.

What are some alternatives to government business loans in the UK?

If unable to secure a government business loan, alternatives include traditional business loans from banks, exploring the Bank Referral Scheme, considering nonbank online lenders, and seeking support from financial institutions or business development organizations.