Whether you want to ambitiously grow your small business or pay off some urgent bills, extra finance can help you achieve your goals. And there are several different types of business loan to choose from.
From invoice finance to a business cash advance, it can be difficult to work out which loan will work best for you. Below, we explore which business loan will be right for you.
Business cash advance
One option to inject some money is a business cash advance. This is a type of lending based on the payments your business usually receives from card revenue. You’ll receive these payments in one loan from a lender, before paying back your loan with flexible monthly instalments.
This can be an excellent way of receiving flexible funding without collateral. A business cash advance can be used for new premises, stock purchase, growth, unexpected bills or even just peace of mind.
Invoice financing
Another choice for you is invoice financing. This works in a similar way to a business cash advance.
A lender will examine the invoices you consistently receive each month. From there, they’ll give you an up-front loan and chase up the invoices on your behalf to receive their repayment on the loan.
In the UK, a business can choose from two main types of invoice financing. These are invoice factoring and invoice discounting.
Invoice factoring: allows you to borrow up to a certain share of the value of the unpaid invoices. After costs are taken away, you will receive the remaining balance.
Invoice discounting: differs from invoice factoring in that you will keep the credit control responsibilities. Instead, you pay a fee and a discount charge to your lender.
Invoice financing can be used to enhance cash flow typically if invoices owed are not being paid. Helps to combat late payments, growth of the business, avoid raising equity or just to help deal with any unexpected bills.
Term loans
A term loan is a traditional form of financing for your small business. This is where you receive a lump sum after various checks and tests from a bank or lender. From there, you’ll have rigid, set monthly repayments that you make with a clear rate of interest. A term loan is usually meant for equipment, real estate, or working capital. These are great for short- and long-term financing needs.
Personal terms
A person terms loan is where you receive money as an individual rather than as a business. This is often used if you’re looking for the capital to start a business.
After all, it can take significant capital to get a business off the ground. This will work similarly to a term loan, where you receive a lump sum with structured repayments.
Personal loans are a good way to consolidate and pay off costly credit card debt. The funds are more likely to be used towards paying off necessary expenses.
Recovery loan scheme
Alternatively, you could consider the recovery loan scheme. If your business was adversely affected by the pandemic, you may discover that you’re eligible for a business loan from the UK government.
This can give you access to the financing you need to recover and grow your small business during this difficult financial period.
Will I be eligible for a recovery loan scheme?
Let’s look at what your business needs to be able to be eligible
1. Turnover Limit-Businesses with a turnover that doesn’t exceeds £45m per annum.
2. UK based- your business must carry out trade in the UK
3. Viability check – you will need to be able to demonstrate that your business is viable or would have been, had the Covid 19 pandemic not happened.
4. Impacted by Covid-19 -you should be able to prove your business was impacted by the pandemic
5. Credit checks – your business will have to undertake credit and fraud checks
6. Insolvency- your business must not be in insolvency proceedings
If you need extra capital to help grow or stabilise your small business, there are plenty of options out there. And by following the guide above, you should be all set to select the right loan for your business.