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Types of Business Loans in the UK

A conventional business loan is just one of multiple ways to secure a cash inflow to your business, shoring up difficulties with working capital and investing in new machinery or equipment.

This guide from Revolution Brokers showcases the variety of business loan products out there and the pros and cons to consider before you apply.

Different Types of Business Loans in the UK I Can Apply For

Although not an exhaustive list, some of the most popular types of business loans in the UK include:

  1. Short-term business loans
  2. Longer-term business borrowing
  3. Working capital lending
  4. Equity finance
  5. Asset financing
  6. Invoice finance

We’ll run through each of these below to provide more detail.

1. Short-Term Business Loans

A short-term loan is just that – a quick cash injection, usually for an immediate requirement such as hiring more staff during peak season or investing in a new vehicle that is critical to business expansion.

Terms tend to be from one month to two years, although interest rates are higher if the loan is unsecured.

Secured loans mean that the lender leverages a business asset, which you’ll need to put up to allow them to call in the collateral if you don’t repay the loan.

Unsecured loans are generally only advisable for a very short-term period since, although the process is faster, the rates are also higher given the additional risk.

2. Longer-Term Business Lending

If you need financing for a longer period or reduce your repayments over time, a long-term business loan can last up to 20 years at the upper limit, although they’re usually around three to five years.

Most banks and business lenders offer a long-term loan, while short-term finance is typically arranged through P2P platforms, providing a faster return for investors.

Either of these loan types could be fixed-rate or variable.

Fixed-rate means that your monthly repayments are fixed and won’t change either for the duration of the business loan or the first few months or years.

Variable-rate business loans mean interest goes up and down with the base rate, so you could benefit or lose out if your repayments move higher or lower.

3. Working Capital Business Loans

A working capital loan works a little differently, stabilizing financial gaps that can be disastrous to businesses without a financial cushion.

For example:

  • You need to buy raw materials to fulfill a large order but don’t have a deposit to pay for the products. Alternatively, you could need to hire additional staff to meet demand and require financing to pay for those costs before invoicing your customer.
  • Website sales have dropped, and you need to invest in a marketing campaign to gain back market share, so you need financing to cover this expense.
  • Your business is seasonal, and you have to cover upfront costs for the trading period ahead but won’t recognize the resulting revenue for a few days or weeks.

Rolling finance of this nature is a great option if you need occasional business lending to boost productivity.

Still, you’ll also need to calculate the total costs and ensure it’s advantageous.

4. Equity Finance Business Loans

Our final business loan product is equity finance – where you sell business shares for a capital injection.

Equity finance is normally used by start-ups or early-stage ventures that need capital to develop their products or services and don’t have the assets or trading history to make another business loan viable.

Investors buy a proportion of the company in return for their capital and sometimes require voting rights or a level of involvement in running the business.

Please get in touch if you’d like more information about any business loans mentioned here or guidance about which solutions might be most suited to your business.

5. Asset Finance Business Borrowing

Asset finance involves utilizing assets held within your business to raise capital.

That might be a property with sufficient equity, stock, vehicles, or other assets, including customer accounts.

Depending on the value of your assets, you could potentially raise substantial financing, which you can use for extensive restructuring or expansion.

Business loans of this nature tend to be used by larger businesses with a strong asset base that require cash inflows to take advantage of trading opportunities.

There isn’t any limit per se on what you can borrow, and that could be into the millions.

6. Invoicing Finance as an Alternative Business Loan

Many businesses have unpaid invoices or trading terms with their clients which means they don’t receive remittances for 30, 60, or even 90 days after issuing an invoice.

Third-party invoice finance, in essence, means you sell those outstanding invoices for a percentage of the value of the sale.

The lender offers a line of credit to draw down the value of cash immediately.

When the customer pays, you receive the balance owing, less the lender’s proportion, and anything you have drawn down in advance.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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