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Business Loans - Exploring and Understanding Your Options

Raising finance for a business has never been more difficult, whether you’re a startup or a well established multi-national. Even the trusty overdraft isn’t what it used to be with banks offering low limits and reserving the right to withdraw the overdraft at any time!

But there is light at the end of the tunnel. In today’s market there are a number of finance options available and some good deals to be found, but this can also be a hindrance with the number of products available overwhelming and some extortionate rates being charged by some lenders.

The following guide is split into three sections:

What type of finance is right for you and your business?

When looking for a finance solution there are a number of factors you need to take into account to determine which form of finance is right for your business both in the short and long term. Turning the question on its head consider “what are you trying to achieve with the funding?”.

If you would like to purchase a property then the obvious choice is a commercial mortgage. If you’re trying to start a business then you’re options could be invoice finance, commercial mortgage, asset finance or a typical business loan.

At this point we would suggest speaking with an independent commercial finance broker who can advise you on your finance options and introduce you to the right lenders.

What are your financing options?

With all the financing options available it is easy to get confused, especially considering all the different names they are frequent referred to, for example factoring is often referred to as asset based factoring, account receivables finance and invoice factoring.

Here is a summary of the most common forms of finance, what they’re typically secured against and who is suitable for each product:

Factoring

  • Product overview - Immediately release up to 95% of the cash tied up in your unpaid invoices, typically within 24 hours of raising them. A lender will also manage your sales ledger, credit control and payment collection process.
  • Benefits – The biggest benefit is the improved cash flow which could help fuel business growth. Allowing the lender to chase payment on your behalf could also save you time and money as you don’t have to invest in expensive management systems or additional headcount.
  • Who’s suitable? – You could be suitable if you raise invoices to other businesses, your projected turnover is over £50,000. This product is also suitable for start-ups and established businesses.

Read more about factoring or compare quotes instantly online >>

Invoice discounting

  • Product overview – Similar to factoring, invoice discounting is the process of releasing cash tied up in your unpaid invoices, with cash typically available to you within 24 hours of raising invoices. Invoice discounting differs from factoring slightly when it come to collecting payment from your customers. With invoice discounting you would collect payment yourself.
  • Benefits – Biggest benefit is improved cash flow to help fuel business growth.  Also the amount of finance available to you grows in line with your turnover, so the more you invoice the more you can borrow.
  • Who’s suitable? – The requirements are virtually exactly the same as factoring (above), although invoice discounting is typically used by larger companies due to the management of the sales ledger, payment collection etc.

Read more about invoice discounting or compare quotes instantly online >>

Asset finance

  • Product overview – Asset finance can be used to purchase equipment and spread the cost over a period of time as opposed to paying in one lump sum.
  • Benefits – Spread the cost of the asset over a long period to reduce the strain on business cash flow. You could also qualify for capital allowance gains as the asset appears on your balance sheet.
  • Who’s suitable – Asset finance is suitable for virtually all businesses, provided you can supply a sufficient deposit and may require some form of guarantee to secure the finance.

Read more about asset finance or compare quotes instantly online >>

Commercial mortgage

  • Product overview – Can be used to purchase commercial premises and even a business which occupies that premises such as a cafe, restaurant or pub.
  • Benefits – Can be used to purchase a business premises to retain ownership and simplify cash flow using an agreed payment schedule. There could also be tax advantages.
  • Who’s suitable – Virtually any business could qualify for a commercial mortgage provided you can provide a sufficient deposit. You could also be required to provide some form of additional guarantee.

Read more about commercial mortgages or compare quotes instantly online >>

How to find the best deal

Finding the best deal doesn’t necessarily come down to paying the lowest rates, you should also consider the service the provider is offering and also take into consideration what happens if you settle the loan early or decide to end the service before the contract has ended.

You also need to consider which type of finance is right for your business. For example a typical business loan could help you manage cash flow in the short term, but factoring could help you manage cash flow longer term and ultimately fuel the growth of your business.

Touch Financial is the UK’s leading commercial finance broker, helping over 500 businesses explore their financing options every month. Our team of experts can advise you on which type of finance is right for your business and circumstance.

Touch work with over 20 of the UK’s leading lenders, which includes the big high street banks, boutique and niche lenders. Touch is 100% independent and our service is completely free as we earn commission from lenders for successful introductions. 

Contact one of our experts today to find out how we could help you arrange a business loan – 0845 388 9725.

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