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Business Finance for UK Businesses | Funding for Small Businesses

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Date Published: November 28, 2022
Business Finance - Photo of a pile of coins - Hamilton Wood and Company London Manchester

BUSINESS FINANCE

—-6 Minute Read—-

Hamilton Wood and Company are a trusted commercial finance specialist helping UK businesses grow.  We provide access to a range of loans for businesses.

In this article, we will delve a little deeper into the many ways a business can secure commercial finance whilst providing a balanced overview of each type of business funding.

HOW TO GET FINANCE FOR A BUSINESS

If you are already in business and trading for over a year then there are a number of ways, we can help you get the commercial finance you need.

Most forms of business loans require the lender to repay more than the sum borrowed.  The cost of a loan is able to be determined by looking at the % APR.

Business loans come in all shapes and sizes from loan duration to amount borrowed but the cost of borrowing has to be clearly shown via the loans’ APR.

What is APR?

  • Annual Percentage Rate (APR) is the global standard of assessing how much a loan will cost. The higher the APR typically the more expensive the sum of money is to borrow.

Please be mindful that there are other factors that can affect the cost of borrowing such as arrangement fees and admin fees.  We encourage you to pay close attention to all costs a broker presents you with before agreeing to take a legally binding loan.

 

TYPES OF COMMERCIAL FINANCE

When it comes to securing finance for your business, it is important to clearly state where in your business journey you are.  There are many avenues for commercial finance and not all of them are traditional business loans.

  1. Business Loans
  2. Business Grants
  3. Start Up Loans
  4. Angel Investment
  5. Crowdfunding
  6. Invoice Finance
  7. Business Overdrafts
  8. Business Credit Cards
  9. Merchant Cash Advance
  10. Commercial Mortgages
  11. Asset Finance
  12. Finance Lease
  13. Venture Capital

 

1. BUSINESS LOANS

Business Loans - Photo of pot of money - Hamilton Wood and Company

One of the quickest ways to raise finance for your business is by applying for a business loan.

The cost of the loan can vary due to a whole host of factors including your past credit history, the amount you are looking to borrow, the duration of the loan and what you intend to use the line of credit for.  One of the major factors determining a lender’s decision is whether the loan will be:

Unsecured business loans: This is where the lender doesn’t secure against any of their owned assets e.g., commercial property, car, plant and machinery and as such, these can be fairly exclusive loans to obtain, or, command APRs typically higher than what we would recommend.

Secured business loans: Secured business loans tend to attract more affordable APRs as the lender has the confidence there is an item carrying real world value to secure the loan against.

ARE YOU LOOKING FOR A BUSINESS LOAN FOR YOUR COMPANY? WE CAN HELP YOU.

Hamilton Wood and Company are a trusted commercial finance specialist helping UK businesses grow.

We pride ourselves on helping your business access affordable business funding and finance with low arrangement fees subject to status.

 

2. BUSINESS GRANTS

Business Grants - Photo of clock behind money - Hamilton Wood and Company Birmingham

Grants are a great way to secure funding for your business but there are a few considerations with them. While state aid in all its forms is a great way to obtain additional capital, you should carefully consider the time v’s reward element to successfully claim a business grant.

The process is often a long-winded and complex process that can tie you and your business in knots for what could be months.

Furthermore, after all that time invested in applying for a business grant, competition is fierce and there is no guarantee your business will get one.

The UK Government has a number of research colleges that fall under the umbrella of UK Research and Innovation.  Every year, a number of grant funding competitions are published and the entry criteria are clearly published.  So, if your business is looking for grant funding to help develop a new product or service we actively encourage you to consider this route.

Business grants will range in value of the award made however, many are closely tied to need and value delivered to society should the funding lead to a future innovation within your industry.

Take heed of our earlier point, the time it takes to apply for a business grant can cripple many smaller businesses.  Some years ago, we went through a process that took four months of full-time work.  It was a process loaded with risk for us from having to talk openly about our ideas and plans that could be deemed commercially sensitive to all manner of different people from patent attorneys to various government and university or college professionals.

If you have a groundbreaking idea or innovation, get it patented before trying to raise growth capital.  Loose lips sink ships is the age-old saying.  Some people tend to say the speed of innovation is your best protection for your IP but if it was, major companies wouldn’t be patenting their ideas would they?

Useful grant funding sites:

UKRI General Guidance

UK Research and Innovation (UKRI)

Government Innovation Competitions

Innovate UK

Innovate UK Edge

 

3. START-UP LOANS

Start Up Loans - Photo of Dandelion Seed - Hamilton Wood and Company Oxford Cambridge

If you are looking for a start-up loan, sadly we can’t help you but would recommend you visit the Governments Start Up Loan company.  The Start-Up Loan Company state they will lend up to £25,000 however, in reality, the figures given are in the region of around £10,000 to £12,000.

Start-up loans are available to businesses in the UK that are in their first two years of trading.

If you are successful in securing business funding via the Start Up Loans Company, a subsidiary of The British Business bank then you will also benefit from ongoing mentoring and business support to guide your early business and to help improve its chances of success.

4. ANGEL INVESTMENT

Angel Investors - Photo of a female angel - Hamilton Wood and Company Leeds Preston

You’ve seen Dragons Den, right? Well, this is what to think of when it comes to angel investment.  You take your idea/innovation/concept to meet with a panel of potential investors.

The investors will typically scrutinise your business idea, its current performance and future market potential. Be careful here!

Focus on what they need to know and separate them from what they don’t need to know.  Remember these people are serious business people interested in making money.  If you tell them too much, why do they need you?

So, now that you are aware of the potential risks, and have crafted a beautiful slide deck to talk them through it’s time to find your potential angel investors.

One of the key benefits for investors is that they get tax relief via SEIS or EIS on the sum of funding they provide to you and your company.

There is another benefit with angel investors in that they are, as we have already stated, serious business people and often come with a wealth of practical advice and knowledge that you can benefit from.  This alone could be well worthwhile for any recent start-up.

There will in most cases be an investor or group of investors with direct industry experience and you ought to focus on the value they bring and how well you gel.

5. CROWDFUNDING

Crowdfunding for Business - Photo of people in a crowd - Hamilton Wood and Company London Newcastle

The newish kid on the block! Crowdfunding is a great way to source the funding your business needs for its future growth and development.

As the money you are seeking works on the basis of taking a small amount from many people, the overall risk to lenders is less but still helps you secure large sums of money.

Crowdfunding is a great way to secure business funding and we encourage you to visit our friends over at CrowdCube.

6. INVOICE FINANCE

Invoice Finance - Photo of Invoice on Desk - Hamilton Wood and Company Chester Nottingham

Invoice finance is a great way to release the money tied up in unpaid customer invoices.  With this type of finance, you are able to release the money owed to your business by your customers. These loans are mainly short-term business loans.

It is possible to secure up to 85% of the owed invoice amount and some companies will also handle chasing the customer for the money they owe.  This has the added advantage of allowing a separate company to handle your debt collection for you.  This saves time and money.

When a customer pays the invoice, your loan is settled less any admin fees and interest.

Invoice finance is typically used for shorter-duration loans where the lenders’ customers have a good record of repaying what they owe.

As with all types of commercial loans, you will need up-to-date company accounts, management accounts, identification etc. in order to be able to apply.

7. BUSINESS OVERDRAFTS

Overdraft - Photo of paper notes and small coin change - Hamilton Wood and Company Bristol Reading

Bank Overdrafts have their place and can be a valuable tool for a business when used properly.  Overdrafts are short-term loans and allow a business a degree of extra credit over and above what may be directly available in their business account.

When looking to obtain an overdraught facility, it is important not to overstretch yourself or your company.  Too many businesses can all too easily end up in a downward spiral of lending and unless a serious effort to repay is made, interest and compound interest can sink ships later down the line.

Banks are realistic though, and providing there is a good use case for the amount of overdraft, and they can see that regular payments are made to your business account, most banks are agreeable and keen to help their customers.  It only tends to be if the credit status of the director is poor or if they sense too greater risk will they decline your application.

Overdrafts are especially useful to cover short periods when waiting for invoices to be settled.

Overdrafts do tend to have much higher APRs and as stated earlier in this article, this is the cost of borrowing so we encourage you to carefully consider all possible avenues for a business loan and go with the cheapest. For the extra time, it takes you this can help pay dividends later down the line.

As proved by Covid and the earlier financial crash circa 2010 businesses can never really know what is around the corner, and so every care should be taken when it comes to securing an overdraft o fast business loan.

8. BUSINESS CREDIT CARDS

Business Credit Cards - Photo of creditcards - Hamilton Wood and Company Portsmouth Plymouth

Business Credit Cards have their place in helping businesses operate however, as with all things finances can carry additional risks.

Credit cards are historically a more expensive way to borrow money.  Many businesses consider issuing credit cards to field-based workers to help pay for petrol and other expenses.  As the person possessing the card can run up potential thousands of pounds that your business is liable for, you might wish to consider a pre-paid debit card as an alternative that helps you reduce risk and retain a greater degree of control.

As with other types of commercial finance, shop around for the best business credit card.  APRs differ and some offer promotional gifts for those signing up.  It’s well worth having a look around before you commit.

If your business has a poor credit rating, Credit Cards can be used to demonstrate you can handle credit which can lead to other loan offers being made for less.

Whatever the reason for considering a company credit card, they should only be used as a short-term measure and paid off as swiftly as possible.  Compound interest has sunk many businesses so heed our words.

9. MERCHANT CASH ADVANCE

Merchant Cash Advance - Photo of payment terminal - Hamilton wood and Co Brighton Gloucester

Should your business use payment terminals to take customer payments then merchant cash advance could be an option.

Payment providers are able to see how much money your business is taking each day may have a facility to lend against your anticipated turnover.  This allows quick access to finance for businesses taking many payments as part of their activities.

Repayment periods can be a little longer too, with many loan facilities offering repayment terms of up to two years.

The amount of credit a business can secure via this route can be on the lower side, with many providers offering around the £2000 mark.

A merchant cash advance is a popular line of credit for businesses and maybe a more affordable option compared to credit cards and overdraft facilities.

10. COMMERCIAL MORTGAGES

Commercial Mortgages - Photo of man holding a buildings keys - Hamilton Wood and Co Liverpool Ipswich

Many businesses that are growing look to secure their own commercial property for the purposes of trade.

In most cases, you can secure up to 75% of the value of a commercial property value and take the loan out for up to 25 years.

Commercial mortgages often attract better (lower) interest rates than normal business loans but they often aren’t fixed rates for long periods of time.  Care should be applied when seeking a commercial mortgage.

There are other considerations that you should consider too.  Any commercial property may be liable for business rates that is something similar to council tax but for businesses.  Business rates are not cheap and could be an additional expense you need to carefully plan for.

Commercial mortgages are in essence fixed loans.  Should your business struggle to repay the loan then your business may risk the building being re-possessed.  It is for this reason that is always good to assess all the options available to make sure you are getting the best deal you can based on your individual status.

 

11. ASSET FINANCE

Asset Finance - Photo of chart showing retained business assets - Hamilton Wood and Company Aberdeen Newcastle Upon Tyne

Asset Finance works two ways.  It is a tool that businesses can use to purchase high-value machinery or equipment.  It can also be used where you already own equipment and machinery and are looking to release equity from the held assets.

Asset finance is a type of secured business loan as the asset itself is what the loan is secured against.

When looking to secure new assets, legally your business doesn’t own the asset until the final payment has been made but it can be a great way to acquire the equipment your business needs to succeed.

Asset Finance is especially powerful when you need to upgrade your kit but don’t have all the money immediately available.  An example could be a new printing press that can accommodate higher through capacity meaning your business can do more work, or reduce costs due to less waste etc.

The cost of the asset can be spread over an agreed term anywhere from a year to ten years and beyond if the asset is of a particularly substantial monetary value.

12. FINANCE LEASE

Finance Lease - Photo of Leased Car - Hamilton Wood and Company Glasgow Wolverhampton

Finance Leasing is another tool used by businesses when trying to secure funding.  A held asset is sold to a lender who leases the asset back to the company for an agreed term.

At the end of the term, the expectation is that the lender will sell on the held asset.

If the lender is agreeable, this can be the lending business however, the lender has the right to sell the asset in open market conditions if you do not have the means to re-secure the asset.

Finance leasing works similar to traditional hire purchase models.  Leasing equipment is not a held asset in its traditional sense and so, does not appear on the company’s balance sheet which may mean you lose out on certain tax relief.

Having said that, the cost of the lease can be applied against trading profits effectively reducing the pool of profit before Corporation Tax is applied. In simple terms, this has the effect of reducing your tax bill.

13. VENTURE CAPITAL

Venture Capital - Photo of City with Big Bright Lights - Hamilton Wood and Company Milton Keynes Northampton

Venture Capital is used when a company, typically a high-growth company is looking for serious investment in order to continue its growth.

Venture capital often starts from £500,000 however, we are aware of certain Venture Capital specialists looking to award a minimum of £1,000,000 however, the screening and vetting processes are arduous in many situations and as you’d expect, security around such substantial loans is expected.

To qualify for venture capital your business will need to be high growth, with a large potential market along with a solid business plan.

 

ARTICLE SUMMARY

While there are many avenues to secure commercial finance, it may prove beneficial to assess all the options before you agree to lend.

Quick business loans aren’t always what they appear to be.  If you feel at any point that an agent from a lender is pressuring you into taking a loan it is normally a red flag to carefully review their offer first.

A few things to consider when seeking to get a business loan:

  • Have you made absolutely sure that the broker or lender is reputable?
  • Have you done your sums and borrowed the amount you truly need instead of over-borrowing?
  • Can you afford the proposed repayments and payment schedule?
  • Can you get the small business loan cheaper anywhere else?
  • Do you have an existing relationship with the company?
  • Are there any cheaper ways to secure the amount needed?

Hamilton Wood and Company helps our customers secure affordable business loans.  We do not work with lenders we wouldn’t use ourselves.

We will help find a number of options for you to choose from and we are proud to offer competitively low arrangement fees to make sure your business gets the best deal on a small business loan in the UK we can.


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