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• 04 Jul

  Small Business Finance Options Explained

  Small business finance options are explained below.

  To discuss your needs with an expert and compare available products please:

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  UK Small Business Finance Options

  Financial management is a core function of any small business or SME (Small and Medium Sized Business) in the UK. If you control your finances and track your cash flow requirements, you may identify that you will need some additional finance to meet your cash flow projections. Several small business finance options are available to meet that need.

  Use our Finance Product Finder to determine which facility would suit your company.

  Small Business Funding Options In The UK

  These are some common forms of finance used by small businesses in the UK.

  Also, see our article about all the Types Of Funding Used By Businesses.

  Small Business Loans

  Small Business Loans are a common source of funding for small businesses in the UK. These loans can be used for various purposes such as expansion, purchasing equipment, or managing cash flow. Both high-street banks and independent lenders offer tailored loan products to meet different business needs including those of smaller organisations. Securing a loan requires a good credit score and often a solid business plan.

  Pros & Cons Of Small Business Loans:  Commercial small business loans are easily understood by most people and normally have a set monthly repayment amount. However, they can be harder to qualify for than some other forms of finance listed below when you have a limited track record.

  Overdraft Facilities For Small Businesses

  An overdraft facility for small businesses is granted by its bank. It is a flexible credit option that allows the business to withdraw more money than is available in their account, up to an agreed overdraft limit. This can be particularly useful for managing short-term cash flow issues. Overdrafts can have higher fees and interest rates than loans but provide immediate access to funds when needed.

  Pros & Cons Of Overdrafts:  Again the concept is easily understood but the availability of an overdraft to smaller businesses can be restricted and the amount granted can be limited when compared to other forms of finance.

  Small Business Invoice Finance

  Small Business Invoice finance allows businesses to unlock the cash tied up in unpaid invoices for sales. This type of finance can improve cash flow and provide working capital. The amount of funding grows as turnover increases and there are a range of additional options such as credit control support, payroll management outsourcing and bad debt protection.

  Pros & Cons Of Small Business Invoice Finance:  These products can appear more complicated than other options but they offer finance that grows with the business and can be far more in amount than that available via other financing options. The additional options can also be helpful to smaller companies that need administrative help.

  See also: Small Business Invoice Factoring.

  Small Business Asset Finance

  Asset finance enables businesses to acquire assets such as machinery, vehicles, or equipment without paying the full amount upfront. This includes leasing and hire purchase options, allowing businesses to use the asset while paying regular instalments.

  Pros & Cons Of Small Business Asset Finance:  This finance can allow the acquisition of assets without a major capital outlay, so its use differs from the cash flow funding sources mentioned above. Using the asset as security can mean it's more easily available than typically unsecured forms of finance such as loans and overdrafts.

  Trade Credit From Your Suppliers

  Trade credit is an arrangement where suppliers allow businesses to purchase goods or services and pay for them at a later date, often 30 days credit may be offered in the UK. This can improve cash flow and provide additional time to generate revenue before settling the payment. It’s essential to maintain good relationships with suppliers and adhere to payment terms to avoid any disruptions.

  Pros & Cons Of Trade Credit:  Suppliers may be reluctant to extend significant credit to small businesses without a track record and financial standing. Discounts can be available if you don't take much credit and pay quickly. 

  Crowdfunding

  Crowdfunding has become an increasingly popular way for small businesses to raise funds. Numerous online platforms allow businesses to present their ideas to a wide audience and attract either small investments from numerous backers or borrow money from numerous lenders.

  Pros & Cons Of Crowdfunding:  It can be a way to raise upfront money for a new venture but it can require that equity is conceded to the funder diluting your stake.

  Government Grants and Schemes

  The UK government offers various grants and schemes to support small businesses. These grants can provide funding for specific projects, research and development, or business growth.

  Pros & Cons Of Government Grants: This can be a way for a small business to raise money without conceding any equity and without the need to repay the grant. However, the purpose of these grants is normally very specific, it can require matched funding from the business and the application process can be arduous and competitive.

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  Further Information

  See also: Finance For New Startups if you are considering starting a new business.

  By Glenn Blackman