Start with the purpose
| Need | Often suits |
|---|---|
| Expansion, refit, acquisition | Term loan (secured or unsecured) |
| Machinery, vehicles, IT | Asset finance or leasing |
| Slow-paying customers | Invoice finance |
| Seasonal or short-term gaps | Overdraft, revolving credit |
| Card-heavy retail or hospitality | Merchant cash advance |
| Buying premises | Commercial mortgage |
How do term loans work?
You borrow a lump sum and repay over a set term, often one to five years for unsecured lending and longer when secured on property. Unsecured loans rely on trading performance and usually need personal guarantees. Secured loans can be larger and cheaper but put the asset at risk.
Lenders usually charge an arrangement fee and may have early repayment charges. Some term loans offer capital repayment holidays at the start, useful when an investment takes time to generate returns. Repayments are typically monthly. For larger loans, lenders often add financial covenants, such as minimum profit or cash levels, that the business must maintain. Breaching a covenant can allow the lender to review or recall the loan, so check them carefully before signing.
When does asset finance make sense?
Asset finance spreads the cost of equipment over its working life. The asset itself is the main security, so lenders may be more flexible on trading history. Options include hire purchase, where you own the asset at the end, and leasing, where you rent it. Refinancing equipment you already own can also release cash.
How does business finance affect cash flow?
Repayment structure matters as much as cost. A short-term loan with high monthly payments can strain cash flow, even if the rate is lower. Asset finance aligns payments with the life of the equipment. Invoice finance grows with your sales, so funding rises as you trade more. Seasonal businesses may prefer facilities with flexible repayment.
Before applying, map out monthly cash flow for at least a year. Show how repayments fit alongside wages, VAT, rent and supplier payments. Lenders will ask, and the exercise often shows which product suits you best. It also highlights whether you need funding at all, or simply better credit control.
What is invoice finance?
Invoice finance advances a percentage of unpaid invoices, often around 80% to 90%, with the balance paid when customers settle, less fees. With factoring, the lender manages collections. With invoice discounting, you keep control and customers usually do not know. It suits business-to-business firms with creditworthy customers.
Other options to consider
- Revolving credit facilities: draw and repay as needed, paying interest only on what you use.
- Merchant cash advance: repaid as a share of card takings. Flexible but often expensive.
- Property-secured loans: larger, longer-term funding secured on commercial or residential property.
- Government-backed schemes: some lenders offer loans partly guaranteed by government programmes.
Each has different costs and risks. Comparing the total cost of borrowing, not just the headline rate, gives a truer picture.
What will lenders check?
- Filed accounts and up-to-date management accounts.
- Business bank statements, often the last six to twelve months.
- Existing debts and any HMRC arrears.
- Directors' credit history.
- Cash flow forecasts for larger requests.
Clean, current figures make the biggest difference. Lenders increasingly use open banking to assess cash flow quickly.
Understanding personal guarantees
Most small business lenders ask directors for personal guarantees. If the business cannot repay, the lender can pursue you personally. Some lenders take a charge over your home to back the guarantee. Read the terms carefully and consider independent legal advice before signing. Some products can be supported by government-backed schemes, which may change the guarantee terms.
How to choose between offers
- Compare the total repayable, including all fees.
- Check early repayment charges.
- Understand security and guarantee terms.
- Look at repayment flexibility in quieter months.
- Consider how quickly funds are needed.
A broker can present comparable options side by side, explaining the trade-offs.
Is business finance regulated?
Most lending to limited companies is not regulated by the FCA. Loans to sole traders and small partnerships of £25,000 or less can be regulated consumer credit. Unregulated lending carries fewer protections, so compare the full cost, including fees and early settlement terms.
OMB works with a range of business lenders alongside property finance, so a bridging loan or property-secured option can be compared where relevant.
Business financeBusiness loans, asset finance, prestige car finance, invoice finance and VAT or tax loans.
Explore business financeFrequently asked questions
What is the difference between a secured and unsecured business loan?
A secured loan is backed by an asset such as property or equipment, which the lender can claim if you default. An unsecured loan has no specific asset but usually needs a personal guarantee. Secured loans are often larger and cheaper; unsecured loans are faster.
Can I get business finance with a new company?
Some lenders fund start-ups, especially through asset finance or government-backed schemes, but choice is limited without trading history. Many lenders want at least one to two years of accounts. Directors' personal credit and experience become more important when the business has little history.
What is the difference between factoring and invoice discounting?
Both advance money against unpaid invoices. With factoring, the lender runs your credit control and customers pay the lender. With invoice discounting, you keep collecting payments and the arrangement is usually confidential. Factoring suits businesses wanting help with collections, while discounting suits those with established credit control.
Do I have to give a personal guarantee?
For most small business lending, yes. Directors are usually asked to guarantee the loan personally. Some lenders cap the guarantee or accept other security. Always understand your liability before signing. Some guarantees are backed by a charge over your home, putting it at risk. Take independent legal advice before signing.
Is business finance regulated by the FCA?
Most lending to limited companies is not regulated. Loans of £25,000 or less to sole traders and small partnerships can be regulated. Unregulated lending carries fewer consumer protections. Compare total costs carefully, including fees, and check early repayment terms before committing.
How quickly can I get business finance?
Simple unsecured loans and asset finance can sometimes be arranged within days. Larger secured loans and invoice finance facilities take longer because of valuations, legal work and due diligence. Having accounts and bank statements ready speeds things up considerably. A broker can tell you which lenders move fastest.
Important: This guide is general information, not personal advice. Rules, rates and lender criteria change; speak to an adviser about your circumstances. Your home may be repossessed if you do not keep up repayments on your mortgage.