Other forms of finance
Learn more about typical finance options for your business, to help you make a more informed decision about your next finance step.
Navigating the world of business finance can be challenging. Whether you’re looking for a short-term solution for your business or longer-term support to keep things moving forward, it can be difficult to know what’s available, what’s right for you and how to apply.
The good news is that finance is out there and businesses are getting the funding they need, all the time. Which is why we’ve outlined typical finance options for your business, to help you make a more informed decision about your next finance step.
Finance usually falls into one of two camps, debt or equity.
Out of the two, debt finance is the more widely used by businesses in the UK. It’s where a business borrows a sum of money (or an asset) and pays it back with interest over an agreed length of time.
Common debt finance products include:
- overdrafts and lines of credit
- leasing and hire purchase
Equity finance is more nuanced, generally takes longer to receive, and is typically more suited to businesses that are looking to grow.
It requires a business to sell a stake to an investor, a group of investors or a fund, in return for finance. As well as the money, there’s typically an ongoing relationship with whoever is investing.
To understand whether it’s suitable for your business, complete our six-step finance tool
Business loans, credit cards and overdrafts are some of the most common forms of debt finance used by UK businesses.
What is a business loan?
A business loan is when a lender provides money to a borrower. The borrower must then pay that amount back, with interest, over an agreed period.
What is a credit card?
A credit card allows businesses to make purchases and payments using a line of pre-agreed credit.
What is an overdraft?
An overdraft is a line of credit that allows you to withdraw more than the funds you have available. Interest is charged on the overdrawn balance, which you can repay as and when your cashflow allows. An overdraft essentially increases the money available to you.
Who are business loans, credit cards and overdrafts suited to?
Business loans, credit cards and overdrafts are typically used for short-term access to funds and can help businesses manage cashflow. Generally, applications are fast and eligibility criteria clear, so if your business is looking for funds quickly, these options may be worth exploring.
Who is eligible?
Each lender will have their own eligibility criteria. Typically, however, they like businesses:
- with assets
- with a trading history
- with a proven track record
- who can demonstrate their ability to repay the loan
Some lenders, such as Community Development Finance Institutions (CDFIs), will consider business loan applications from businesses with limited assets, trading histories or track records.
Where can I get a business loan, credit card or overdraft?
There are different types of business loan providers in the UK. They include:
- high-street banks
- challenger banks
- Community Development Finance Institutions (CDFIs)
- peer-to-peer lenders
- online lenders (often called fintechs)
For overdrafts and credit cards, you’ll need an existing business bank account with the lender.
Asset-based lending is where a business uses existing assets – like machinery or property – as security against finance. This allows it to capitalise on the assets it already owns.
Who is asset-based lending suited to?
An obvious but key requirement for a business is owning assets to use as security. The value of your assets will reflect the amount of finance you can get.
In addition, without a trading history and accurate financial statements that demonstrate your ability to repay the loan, you may not be eligible for asset-based lending.
Who is eligible for asset-based lending?
Asset-based lenders operate across the UK and all industries, so there are no restrictions in terms of sector or region.
Typically, lenders offer facilities of £1 million and over, so eligibility will depend on the amount of finance you’re looking for and each lender’s criteria.
Where can I get asset-based lending?
There are hundreds of asset-based lenders in the UK, ranging from specialist lenders to high-street banks.
Invoice finance allows a business to use its invoices and accounts receivable as security for funding. It’s also known as invoice discounting and factoring.
Who is invoice finance suited to?
With invoice finance, you can capitalise on untapped assets on your balance sheet. If your business is looking to improve its cashflow and gain quick access to finance without having to wait for invoice cycles to be completed, it could be worth exploring.
Who is eligible for invoice finance?
Eligibility criteria differ from lender to lender and depend on the amount of finance you're looking for.
But generally, invoice finance is only available to businesses that:
- are established with a trading history – to demonstrate the ability to repay
- are looking for finance of less than £1 million
- typically receive payment for invoices within 90 days
- have detailed and accurate financial statements
- have customers with a good record of paying invoices on time
- trade business-to-business (B2B)
It’s important to check eligibility criteria with individual lenders.
Where can I get invoice finance?
There are lots of invoice finance providers in the UK, ranging from specialist lenders to high-street banks.
Leasing and hire purchase are common ways for businesses to acquire specific assets, like vehicles and plant and machinery.
Leasing allows a business to use an asset in exchange for paying rent over an agreed period. At the end of that period, the business can continue to rent the asset, return it to the lender or replace it.
Hire purchase is similar. It typically involves a deposit and then fixed payments. At the end of the agreement, however, the business owns the asset.
Who is leasing and hire purchase suited to?
Leasing and hire purchase are suitable to businesses in all sectors and at all stages, as long as they can demonstrate their ability to make payments. These options are typically used by businesses that need equipment to operate but can’t afford to buy it outright.
Who is eligible for leasing and hire purchase?
There are relatively few restrictions when it comes to leasing and hire purchase. Eligibility criteria differ from lender to lender and will depend on the value of the equipment you’re looking to acquire.
Demonstrating your ability to make the rental payments is typically the most important factor for lenders when assessing any applications, along with your credit rating.
Where can I get leasing and hire purchase?
Leasing and hire purchase agreements are available via brokers, equipment suppliers and specialist lenders.
The different types of debt finance we’ve listed above are some of the most commonly used in the UK. But they are not the only options.
Other forms of debt finance include:
- peer-to-peer lending
- direct lending funds
- export finance
What is peer-to-peer lending?
Peer-to-peer (P2P) lending allows you to access business loans from individuals, other businesses and institutions, through a P2P lending platform. You typically find these platforms online.
Essentially, P2P is a business loan provided by – and repaid to – a lender, or a number of lenders, via the platform.
What is a direct lending fund?
Direct lending funds are similar to business loans. You apply for a product – typically a loan – from the fund, then repay it with interest alongside any fees and charges.
What is export finance?
There are different export finance products available to UK businesses. Essentially they are designed to make selling overseas less risky.
These products include:
- bonds and guarantees
- letters of credit
- working capital loans
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