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Understanding your small business finance options

PUBLISHED ON: 18/11/2023

Gone are the days when the high street banks were the only option for financing a small business. You now have a range of alternative finance products that offer greater flexibility and ease of access and you don’t have to be tied to a regular monthly repayment schedule.

Whether you need funding to stabilise your cash flow or you have growth in mind and are looking to purchase new equipment or vehicles, UK Business Finance will ensure you understand your small business financing options and apply for the most suitable product.

Here are some of the potential options:

Invoice finance to optimise cash flow

All forms of invoice finance use the value of unpaid invoices to provide cash injections throughout each month. Depending on your requirements, you can obtain invoice finance by way of either an invoice factoring or an invoice discounting agreement:

  • Invoice discounting is a form of invoice funding that your customers won’t know you’re using
  • If confidentiality isn’t an issue for you, invoice factoring also offers you the opportunity to free up time by passing control of your sales ledger to the lender
  • Single invoice factoring, also known as spot factoring, can provide a quick injection of cash if your business issues fewer invoices but they’re for substantial amounts

The invoice financier releases a pre-agreed proportion of your invoices within 24-48 hours, which provides reliable working capital for your operational needs or as a foundation for growth.

Working capital finance for operational flexibility

Working capital finance may be a good choice if you’re undertaking a new development project and need additional funding. An example of working capital business finance is revolving credit.

Revolving credit works in a similar way to a bank overdraft as a credit limit is set by the financier. You can use the credit facility and repay it as many times as you like during the term of the borrowing.

Tax loans to avoid HMRC penalties and interest

Tax loans spread the cost of your tax bill, with terms of up to 18 months typically available. They’re commonly used for VAT and corporation tax liabilities that would otherwise cause cash flow problems and financial instability for a business.

Repayments are set for the term, giving you valuable ‘breathing space’ and avoiding unwanted scrutiny from HMRC. Tax loans are also flexible in that you can apply after you’ve paid your tax bill.

Financing and refinancing assets

Asset finance enables you to purchase expensive hard assets but pay for them over time using a hire purchase agreement or leasing. It can be used to buy equipment or machinery, for example, or even to fund a fleet of vehicles, without using up your business capital.

  • Hire purchase involves making an initial deposit followed by a schedule of repayments, typically for up to six years. You’re responsible for maintenance and insurance and can ultimately take ownership of the asset following a completion payment at the end of the agreement.
  • Various types of leasing are also available, offering you unrestricted access to the asset and flexibility at the end of the lease agreement. You may be able to purchase it, for instance, or upgrade it and take out a new lease.
  • Asset refinancing uses the value locked in an existing asset to provide a lump sum of capital to your business. You then repay the financier a fixed monthly amount over a set period before taking ownership of the asset once again.

UK Business Finance are commercial finance brokers and can find the best finance deals for your small business. We take a whole of market approach and charge no fees for our services. Please contact one of the team to find out more about how we can help.

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