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How to finance a business

PUBLISHED ON: 28/01/2024

Business financing and funding options have expanded greatly in recent years and you’re no longer restricted to loans from the major banks. The alternative finance market offers funding solutions that you may not have considered before, and that are typically quick to obtain.

Initially, you’ll need to consider your specific business’s needs in terms of funding – why you need the finance, roughly how much is required, and how you’ll repay it. You may need regular support for your cash flow each month, for example, or a cash lump for investment purposes.

Secured business loans

A secured loan may be appropriate if your business owns one or more assets of value. By using an asset as collateral, the lender can repossess it if you don’t keep up with the repayments, which makes it a low risk option for them.

Benefits of secured business loans

  • You may be offered better terms compared with an unsecured loan
  • If you have poor credit or you’re a start-up businesses, you may still be eligible to apply

Unsecured business loans

Unsecured business loans don’t require you to put forward any assets as collateral and can be fast to access, although you may be asked to sign a personal guarantee. Unsecured loans of up to £200,000 are typically available, and these can be used for any business purpose.

Benefits of an unsecured business loan

  • No assets are required
  • The repayment terms can be flexible

Invoice finance

Invoice finance is a type of alternative funding that might be suitable for your business if it has a strong sales ledger. Factoring is one form of invoice finance that releases around 90% of the value of your unpaid invoices, usually within 48 hours.

Benefits of invoice finance

  • You receive regular cash inputs throughout each month to support your business cash flow
  • Your financing facility can grow alongside the business

Hire purchase

Hire purchase offers you a way to purchase expensive assets without using up your business capital. A hire purchase agreement involves making fixed monthly repayments over a specified period. It also incorporates a ‘completion payment’ that transfers ownership of the asset to your business at the end of the agreement.

Benefits of hire purchase

  • It’s a finance solution open to businesses at any stage, and also to those with a poor credit rating
  • It’s low risk financing as the asset is hired until the completion payment is made

Asset-based refinance

Equipment or asset-based refinancing allows you to sell a high-value asset to a lender, and then rent it back from them. You make fixed monthly repayments and take back ownership when the contract is completed.

Benefits of asset-based refinancing

  • Unlocking the value held within a fixed asset provides a valuable cash boost and can stabilise your business’s finances
  • There’s no interruption in your rights to use the asset

UK Business Finance can help you to find the most appropriate form of funding for your needs. Our services are free-of-charge and we can make the funding application on your behalf. Please get in touch to find out more – we operate a nationwide network of offices.

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