Business finance funding options

There are many sources of finance that could be available to your business. Here are some of the main options to consider – from help with day-to-day cash flow, to investing in a larger purchase, or fuelling exciting growth plans.

Business loans for startups

Like many businesses, the first place to go to for financing options is your bank. If you bank with us, we can offer expert guidance tailored to your needs thanks to the knowledge we build up about you and your business over time. This helps us to quickly identify the most appropriate sources of funding and offer a range of options available. These include:

• Unsecured business loans:These types of loan are a straightforward way of borrowing money, with fixed repayments (including interest) over a set period of time. They’re most suitable for medium to long-term plans, with interest rates and the amount you can borrow depending on your circumstances. We could provide unsecured lending from £1,000 up to £100,000. Once your application is approved, you’ll usually have your money within 48 hours of signing the paperwork. Use our business loan calculator to help you work out how much a loan could cost you.
  
• Secured business loans: As well as unsecured borrowing, you can also use a range of your company’s assets, including property, inventory or equipment, as security for a loan. This can be an effective way of raising cash for working capital or investment. The amount you could borrow will depend on the value of the asset. Secured loans will usually offer a lower rate of interest than unsecured borrowing, while unsecured loans allow you to borrow without placing assets at risk of repossession.

If you're looking to buy or remortgage business premises, there are several funding options that could be available to you, including buy-to-let loans for business and commercial mortgages. You might also consider talking to a Commercial Finance Broker or one of our Business Managers – they will provide guidance, discuss the options available to you and deal directly with the lender on your behalf.

• Overdrafts ¹: These are more suitable for day-to-day cash flow needs than for fuelling the growth ambitions of established companies. They can be useful in helping to provide financial support when your business needs it most. We offer unsecured overdrafts up to £50,000 and secured overdrafts for larger amounts.
• Invoice finance ²: This gives you the power to unlock cash tied up in your outstanding invoices and can provide an ongoing solution that grows with your business. It’s ideal if you have long payment terms, or if your business is growing and you’re looking for money to help you seize new opportunities. We’ve partnered with Kriya to give you access to a range of quick and easy online invoice finance solutions.
• Asset finance ³: This helps you to fund the purchase of an asset. It allows you to spread the cost through regular repayments and means you don’t have to use valuable working capital to pay a lump sum up front. Asset Finance can be a good way to preserve capital and generate an income from an asset while you’re paying for it.
  

The UK government could also help your business to secure necessary funding through a variety of measures, including a business grant. They currently provide a range of grants for small businesses, which are managed by several different bodies. Most are linked to specific activities, such as research and development. While the grants don't have to be repaid, you will have to meet strict qualification criteria. Discover the support that could be available for your business. 

One of the main benefits could be flexibility over how and when you pay the money back. It could also give you the opportunity to get finance on top of what you can borrow more formally elsewhere (as long as you’re able to repay all the money you’ve borrowed).

But you – and your investors – should understand the commitments being made by all parties. Any misunderstandings could risk damaging your relationship in the future, so it’s advisable to draw up a formal contract with help from an independent solicitor.

Offering a share of your company (or equity) to a third party as an investment opportunity, could be an effective way to raise cash. Compared to a business loan from a bank, you might not have to make any repayments on the money invested.

However, Angel Investors (wealthy individuals who back businesses with their own money) and Venture Capitalists can ask for a larger share of your company in return for their investment.

• Crowdfunding: This is where businesses raise small amounts of money from lots of people, via specialist online platforms. In exchange for the cash, businesses can promise a range of rewards to their investors, such as early access to products, discounts or equity stakes in the business. Crowdfunding can be used for purposes as diverse as funding a small project, to getting a new business off the ground. It’s a popular choice, so with many businesses fighting for attention it can be hard to successfully raise the money you’re looking for.
  
• Peer-to-peer lending: This combines aspects of traditional lending and crowdfunding, with specialist online platforms allowing businesses to take out loans funded by many individual, small investors. The criteria for borrowing in this way can be less strict than traditional banks, and you might also be able to borrow more and get access to the money more quickly. Be aware that costs are not always lower than they would be for a traditional business loan from a bank.

1. Know what type of funding you want

Doing your research first can really help you get ready to apply for business funding. Whether you’re looking for a business loan for startups or wish to apply for a government grant – weighing up the pros and cons of all the options in advance can be crucial to a successful outcome.

How ready you appear to others when applying for finance, will also improve your success rate at securing the funding. Being clear about your business funding needs and how you want them to be met, can help to give people more confidence in lending to you. At the very least, it can speed up the process and help prevent wasted time and energy on things that won’t work for your business.

This consideration stage should also focus on your own requirements too, both now and in the future. For example, borrowing from a family member may seem like an easy source of funding initially, and for many businesses it might be the most suitable option. Yet it won’t help you to build up the kind of credit rating that could help to unlock further business finance for growth opportunities when your business needs it.

2. Have a good credit rating

Being able to show you’re worthy of credit could, in most cases, be a key factor in securing funding for your business. But how do you make sure yours is the best it can be before approaching potential lenders? Following these tips could help boost your score:

• Understanding credit ratings: The first step to a good credit score is knowing what it is and why it’s important. Having this in mind will help you take the steps you need to look after it, which will serve you well when it comes to securing finance.

• Fix any incorrect information: Check your credit score regularly and if you find something wrong take immediate steps to correct it. Don’t wait until you need to make a borrowing application.

• Sort out anything harming your score: If you see that something within your control is harming your credit rating – for example if you’re late with payments or you haven’t filed your company accounts when you should have done – take immediate steps to resolve the issue and  build your business credit score.

• Be careful who you work with: Research customers and suppliers, checking their credit ratings if appropriate. If they suffer difficulties, it could have also have an effect on your own business and your credit rating.

• Don’t apply too frequently: Having lots of applications on your file in a short space of time can look like the business is in trouble financially – even if it isn’t.

• Don’t be afraid of credit: Showing your business can handle credit effectively can boost your score. Having a good credit history can be a positive.

• Don’t neglect your personal rating: Your business credit rating is separate from your personal one. But in some circumstances, credit rating agencies can consider your personal history, particularly for startups without much credit history of their own.

3. Know how to approach potential investors

Getting this right can help prevent wasted time and lost opportunities. It’s essential that you can present your business as a viable investment opportunity.

The best time to approach lenders is as soon as you’ve started to think about your growth plans. Not only can this help to shape your strategy more fully, but lenders may also feel more confident if they’ve been involved in discussions from an early stage.

You should also be specific about why the money is needed, how you’ll pay your investors back and how long it will take you to do so. Be prepared to answer in-depth questions about your business – potential lenders will want to feel comfortable that your ambitions are built on firm foundations.

Different lenders will have varying criteria for business funding, so research this in advance and make sure you meet the requirements.

Regardless of who you’re planning to borrow from and the type of lending you’re looking for, it’s essential that you’re clear about your own side of the deal – whether that’s the assets you’re prepared to offer up as security, or how much of an equity stake you’d be comfortable giving up.

There’s no set method that will guarantee success when pitching for business finance, but you can give yourself an advantage by presenting your case in the best possible way. Research tips and best practices when applying for funding to help you get ready and to know what to expect when presenting your funding pitch.

Many lenders, including us, will often use the CAMPARI framework to assess your application. If you can meet the criteria in this model in your pitch for funding, you’ll be more likely to get a positive outcome. Don’t forget to add in anything that makes your business stand out, for example if you’ve won awards or been particularly successful in a certain area. Think about whether there’s anything relevant that the bank might not ask about but that could put your business in a stronger position.

C – Character: This is your chance to shine and in business financing terms that means convincing investors that you – and your business – have the professionalism to look after their money and give them a return. You can incorporate many things, from the confidence you have in your idea, to your business’s record of making loan repayments in time. Having a strong brand reputation also helps a lot.

A – Ability: You need to show clearly that you and the people in your business have the knowledge and ability to generate growth from any funding that’s provided. Your track record as a business is likely to be considered, as is the quality of its products or services and the strengths of the management team. Your staff could also play an important role – having good people in key positions helps to give lenders confidence, so consider taking on outside expertise if you don’t already have the right people within your business.

M – Means: Is your business equipped to deliver on your growth ambitions? This is where the strength of your business plan comes into action. You should try to show where you have, or will have, a competitive advantage in the market. You should also prepare detailed financial reports with best- and worst-case scenarios, future growth projections, previous performance records and in-depth company expenditure.

P – Purpose: Lenders will want to know what the money will be used for and how it will be used to generate a profit or improve the business’s financial situation. This part of the framework is also where prospective investors will consider whether the borrowing is in the best interests of the business, if there’s a good enough reason for requesting it and if it fits in with their own lending guidelines.

A – Amount: How much are you asking for, and is it the right amount for your stated requirements? Potential investors will want to see how you’ve decided on the level of funding you’re asking for, how it aligns with your financial projections and what the business’s own contributions to the project may be. It’s worth taking time to decide on the right amount. While it’s a good idea to be cautious, asking for too little funding could be counter-productive if it means your plans are judged as being less likely to succeed.

R – Repayment: You’ll need to be able to show evidence that you’ll be able to afford any repayments or provide solid projections that indicate how you’ll be able to repay your investors over time. Lenders will be looking for details on the source of the repayment money. They’ll be considering areas such as the health of your cash flow, your profit margins, and if the repayment period is acceptable.

I – Insurance: In many cases, it’s important for you to be able to show that you have a back-up plan in place in case things go wrong. Do you have another source of repayment? Have you taken out any insurance that could allow you to repay the financing if you fall short of your targets? If you’re securing the finance on an asset, make sure you have an up-to-date valuation to show.

Small to medium enterprises (SMEs) often prefer to grow more slowly than borrow money in order to grow faster. While the financial, and other, obligations of business funding need to be considered carefully, so should the opportunities it can provide.

Successful borrowing can often be positive for the long-term health of a business, helping it to develop and ultimately become much stronger.

And for many businesses with ambitious growth plans it’s likely that, at some stage, they will consider taking on financing to help achieve their aims. Find out how to accelerate your business growth ambitions by partnering with our business financing.

It’s certainly the case for glass artist Ray Youngs, who found that borrowing money from us gave him much more than just the financing he needed to move his business, Skullpture Glass, to larger premises.

Working closely with us also gave him the confidence and contacts to put additional growth plans in action, including exploring further expansion through new international opportunities.

To find out more about Ray’s story, watch our video.