Unpredictable income, expensive stock and equipment, late client payments, rising overheads – even the healthiest business can face challenges sometimes. And if you’re looking to grow and expand, that always comes with upfront expenses. Business finance is designed to help companies of all sizes survive and thrive, providing much-needed capital and relieving pressure on cash flow.
How Does Business Finance Work?
Here’s a quick overview:
You’ll find a wide spectrum of business financing on offer from general and specialist lenders. The most popular choices include:
Business loans:
Business loans can be used for many business-related purpose. Secured loans require an asset as collateral, and they usually allow you to borrow more and repay it over a longer term. Interest is lower, too. You don’t need collateral for an unsecured loan, but you may need to furnish a guarantee.
Asset finance:
Asset finance helps you to spread the cost of essential equipment, splitting it into monthly repayments over a period of years. Payments remain fixed and include VAT and interest. You can also release equity by refinancing existing assets.
Invoice finance:
Invoice finance allows you to mitigate the impact of late client payments by assigning invoices to a lender, who immediately advances you 70–80% of the value. When the client pays up, the lender deducts their fee and forwards the rest.
Revolving credit facilities:
Revolving credit facilities work in a similar way to an overdraft. You can withdraw credit as needed, and you only pay interest and fees on what you borrow. As soon as you repay that amount, it’s available to borrow again.
What if my business is brand new?
Many lenders offer commercial finance, such as loans, leases and credit facilities, to established businesses that meet a certain turnover threshold. They also require applicants to submit financial accounts covering a certain period, typically three years or more. This means that many products are not suitable for new businesses.
The good news is that there are loans specifically for new start-ups. These are personal, unsecured loans that typically offer flexible repayment and a competitive interest rate. You can use these to fund any aspect of getting your business up and running. However, you’ll need to prove that you can repay the loan if your business fails, so a strong credit score is very important.
Are there any risks to business finance?
With any type of financing, the consequences of defaulting can be serious. If you’ve taken out a secured loan, the lender can seize the asset you offered as collateral. In the same way, missing payments on a lease or hire purchase plan may mean losing access to the item.
In the case of an unsecured loan, you are personally responsible for repayment. Failing to do so can affect your credit score and even lead to legal action. No matter what kind of finance you apply for, it’s important to make sure that it’s within your means to repay the whole amount (including interest, VAT and fees). In that way, you can enjoy the benefits of business finance without worrying about the risks.
Explore Your Business Finance Options
Need funding to support growth, manage cash flow or invest in your business?
Submit your enquiry using the form below or contact our team directly to discuss tailored business finance solutions.
At Wenham Specialist Finance, we guide businesses through every step of the funding process with expertise and a personal approach.