Need cash but don't know where to start?
Experian can help you find the right finance for your small business using our network of brokers. We know that business finance and loans are as individual as you are and one size doesn’t fit all.
Here we quickly explain the finance options available and how they could be used:
Invoice Finance
What’s it for?
- Releasing cash tied up in your business
- Pay Suppliers, VAT, PAYE
What is it?
Invoice Finance is a very effective way of easing your cash flow. It uses your companies invoices as the main assets against which money can be raised.
How it works?
There are two types of Invoice Financing, Factoring and Invoice Discounting. Both work on the same principle.
Simply put, the lender will pay you an agreed percentage of an invoice value (sometimes as much as 90%) as soon as the invoice is submitted.
Think of it as a sort of cash advancement and payment collection service all in one. The balance is repayable when the invoice has been settled in full.
The lender makes money by taking a service charge in line with the value of each individual invoice.
Factoring tends to suit smaller businesses that might not have their own in-house accounts team and Invoice Discounting tends to be for larger firms with in-house finance teams.
Summary
- Immediate access to cash
- Secure and flexible solution
- Provides positive cash flow to help your business run more smoothly
- Allows your finances to grow as your business does
- Provides added benefit of being a payment collection service
Commercial Loans
What’s it for?
- Growing and expanding your business
- Acquiring another business
What is it?
A straight-forward, flexible, short-term loan. The money can be used across your business for various purposes in return for regular monthly repayments
How it works?
Commercial Loans are similar to personal bank loans and are calculated and approved according to the credit history of your business (and sometimes also considering your personal rating in some circumstances).
The main considerations that lenders take into account are:
the funds required, past financial history, up to date business accounts showing the business is running well, and what, if any, collateral is being used.
You must complete paperwork detailing how much money you require and for what purpose. Usually an administrative fee is charged for setting up the loan and each month the loan will accumulate interest which you will have to pay back.
The interest rate will be variable or fixed but this is usually agreed at the outset of the loan.
Summary
- A Commercial Loan can be used for many purposes, whereas other types of finance will be restricted to only one purpose.
- However, it can be a more expensive way to secure funding and the eligibility criteria may be stricter.
Asset Finance
What’s it for?
- Securing short term working capital
- Buying or leasing equipment for your business
- Buying or leasing vehicles for your business
What is it?
An affordable, secure way to acquire assets for your business, from office equipment and car fleets to manufacturing plans
How it works?
Asset Finance is usually split into two main product types – Hire Purchase and Leasing.
Hire Purchase enables you to buy an asset by paying an initial deposit followed by regular payments with interest over a set period. You will eventually own the asset outright at the end of the repayments. As part of the agreement you will usually be responsible for the maintenance and repair of the asset.
Leasing works in the same way but without you actually owning the asset(s) outright. You effectively hire them and pay a monthly rental over an agreed fixed term contract. At the end of the contract period, you will usually have a choice of extending the lease, buying the asset or simply returning it to the leasing company.
Summary
- For tax reasons, you are viewed as the owner of the asset and therefore eligible to claim capital allowance tax
- Cash flow is easier to forecast because your repayments will usually be regular amounts
- In some instances you may be able to see a direct correlation between the revenue generated by the asset and the cost of the repayment
Commercial Mortgage
What’s it for?
- Buying a commercial property
- Developing a commercial property
What is it?
A Commercial Mortgage is a loan for the purchase of a commercial property and (just like a residential mortgage), is secured against your property and repayable over a defined period.
How does it work?
Commercial Mortgage lenders will nearly all require you, the business and directors to have a positive personal credit score and clear evidence that your business is 'credit-worthy'. Most will expect you to invest a proportion of your own money in the purchase. The more of your own money you are willing to invest, the greater your chance of securing a loan for the balance.
Some lenders may impose restrictions on the uses of commercial premises, such as your right to sub-let to other businesses. You will need to consider carefully all the terms of any agreement, particularly as the loan period can be for up to 20 years.
Summary
- Commercial Mortgage repayments are often similar to that of rental payments on like-for-like properties
- Interest repayments are currently tax deductible in the UK
- Forecasting cash flow is easier as you're not susceptible to exposed to rent increases from commercial landlords or agents
Venture Capital
Venture Capital is finance provided to newer companies with higher growth potential and greater associated risk. Typically this type of funding is used to support new business ideas, inventions or technologies. Investors take an equity share in the new company in return for their investment. They stand to make a significant return if the business is successful. Currently we do not provide access to Venture Capital.
To find out more, download our free guide, “How to find finance more easily”.
Already know what you need money for and how much?
Enter that information here and Experian will help you find the right finance for your business using our network of brokers.
Don't worry, doing this doesn't require you to make any commitments or even reflect on your credit score.