We want to help minimise the stress and confusion associated with financial products. Put simply, which financial loan product is best suited for your business and your needs?
Invoice finance is a great option if you are a business that deals regularly with invoices, and needs to manage your cash flow issues. In simple terms, rather than waiting days or weeks for an invoice that you are owed by customers, invoice finance gets you the cash immediately, so you do not need to wait to get paid. Invoice finance is great for businesses that have long payment terms and rely on being paid by customers. It is suited for businesses that sell goods or services to other businesses on terms, and then raise these invoices on completion or delivery of the product.
If you have cash flow issues caused by having to pay creditors before your debtors pay you, then invoice finance may be the right choice for you. Invoice finance is great for growing companies that have a significant amount of assets tied up in receivables. You may want new stock or tender to fulfill a new contract. There are various products within invoice finance, such as confidential invoice discounting, factoring, or selective invoice finance. Ultimately, whichever product you use, the destination, to free up cash tied up in your unpaid invoices, is the same. Invoice finance helps businesses that require flexibility due to seasonal sales. If you have fluctuating sales, invoice finance can help cover your low seasons.
Great if you:
- Want long payment terms
- Are profitable and need to invest in growth
- Have slow-paying customers
- Are a start-up business and are happy to put security up
- Want short-term finance
- Need working capital
Asset finance is a great option for businesses that are asset-rich and potentially cash-poor. It is a flexible approach to funding that allows you to leverage assets you own or create payment structures to access assets you would like to own or lease. It is a great model of finance for businesses that can access a range of high-spec equipment, machinery, or vehicles. You do not have to buy the asset upfront, so it will not damage your working capital.
Asset finance is widely available for all businesses involved in assets, but it is specially designed for businesses with a high CapEx requirement, for example, manufacturers and haulers. It is a great option for businesses you need to finance assets without making upfront costs. Asset finance breaks down the purchase into affordable monthly repayments and helps to manage cash flow for start-ups.
Great if you:
- Are asset-rich and cash-poor
- Are profitable and need to invest in growth
- Are happy to put security up
- Want short-term finance
- Need working capital
Secured business loans are as the name suggests, a loan which is backed up by security. This means that it is a good option if you have a valuable asset, such as your home, that you can secure the loan against. The benefit of a secured loan is that they are less risky for the lender and are therefore given a better interest rate. A secured loan against your home will be considered a first-charge mortgage if you have no existing mortgage. However, if you already have a mortgage, the secured loan will become a second-charge loan. This will then mean that you will have to set up a separate agreement with your existing mortgage lender.
A secured business loan is ideal for a business that has a lot of capital tied up in assets. For example, a manufacturing company that has gaps in cash flow but has the equipment and commercial buildings. The criteria are relatively straightforward with this product if your business owns any assets you are
likely to be eligible.
A lender would look more favorably on tangible assets, simply because it is easier to value and they
would be able to recoup their losses easier if needed. In general, businesses with solid trading
histories and assets available to put up as collateral are best suited.
Great if you:
- Want long payment terms
- Use credit card payments
- Are asset-rich and cash-poor
- Are a start-up business that is happy to put security up
- Want finance for property
- Want finance for retail
If you want to access a loan that does not require any security, and that you can access quickly, then you will want to consider an unsecured loan. It is often thought to be the fastest and most flexible way to raise funds. An unsecured loan may be for you if you are a business with lots of intangible assets. The better your credit score, the more you are likely to be able to borrow, and the better rates of interest you will be offered.
Unsecured loans are a good option as you are able to receive large sums of money flexibly and fast. The application process is usually simpler and speedier than a conventional business loan, and in turn, is a great way to boost your cash flow or make one-off purchases. Most unsecured loans do not have early repayment fees which are ideal if you are working to get clear business debt.
To access an unsecured loan your business must fall into the below criteria, minimum 2-year trading history, your business owner must be a UK resident, and there are no major defaults on other creditors. Assuming you fill these credentials, it will then be down to the lender’s individual criteria.
Great if you:
- Use credit card payments
- Are asset-rich and cash-poor
- Are profitable and need to invest in growth
- Want short-term finance
- Need working capital
- Want finance for retail
A merchant cash advance is a good option if you have a business that often uses a card terminal. The lender lends you a sum of money that is paid back in installments through a percentage of customer card payments.
They are designed for businesses that need flexible repayments. The repayment is taken out of proportion to your revenue, so the more you sell, the faster your loan is cleared. Merchant cash advances have proved popular because of their flexibility. Repayments are flexible and scalable, so if you run a business that may struggle seasonally, the repayments account for this.
Any business that uses a card terminal is eligible for a merchant cash advance. It is particularly good for a business that may not own valuable assets or needs a fast way of getting cash. The loan process is relatively straightforward and easier to access than traditional loans.
Great if you:
- Use credit card payments
- Are profitable and need to invest in growth
- Want short-term finance
- Want finance for retail
Bridging loans are a good option if you are dealing with property. Property developers or homeowners would use a bridging loan to bridge the gap between the purchase and selling of a property. Bridging loans are often used in tandem with development finance. The borrower will get a bridge loan
to pay for the purchase of a property before organizing longer-term finance. They are often seen as a second mortgage.
They are a short-term solution and are usually only taken out for a few weeks or months. You can borrow a maximum of 75% of the value of your property. Bridging loans offer quick access to cash. You can usually organise one in 2-14 days, when you consider that a mortgage or business loan will often take a month or two to organise, a bridging loan can help in an emergency or when an opportunity is too good to miss.
Great if you:
- Are asset-rich and cash-poor
- Need short-term finance
- Want finance for property
A revolving credit facility is a great option if you are in need of flexible funding. It is a loan facility that enables you to withdraw money, use it, repay it, and then withdraw more money. As the name suggests, it is a ‘revolving’ loan that allows for flexible use and repayments. In a sense, you borrow from a pre-agreed pot which ensures that you can borrow whenever you need with minimum hassle.
It gives you the freedom to decide how much you want to borrow each month and when you want to pay it back. Funds are readily available in a fast and smooth process. A revolving credit facility is useful for operating purposes, especially if your business is experiencing fluctuations in its cash flow. They are also beneficial for business owners if they need immediate credit to purchase equipment, stocks, products, and more. A revolving loan is also a good option, if you need emergency funding, for instance, to pay for urgent repairs or medical bills.
They typically have an APR of 0.75-6% per month. It is a draw-down facility, so the lender will only charge interest on the amount you use. Most lenders will typically charge interest on the outstanding loan amount per month.
Great if you:
- Want long payment terms
- Want short-term finance
- Want finance for property
- Need working capital
Which product suits your needs?
Find out more about all of the products here.
To find out more about which financial loan product you and your business are best suited to, get in contact with the team at Funding Bay to organise a consultation here.
