Funding Your New Business

Now that you understand some of the challenges you may face when applying for finance as a new business, let's look at some of the potential options for a startup business seeking finance. 

Not all will be suitable for you due to the challenges mentioned above, and not all lenders offering these products will lend to startup businesses.

1. Government backed loans

The government's startup loan scheme can provide applicants with up to £25,000 per director at a maximum of four directors per business. The loans are at 6% over 5 years which is very competitive finance in this sector.

Due to the increased volume of applications over the last couple of years, the Start Up Loans company has tightened its criteria, making it more difficult to obtain this loan.

Applicants can apply directly at the Startup loans website but this will see them allocated a delivery partner at random and the process will take 8-12 weeks. 

However, should an applicant decide they would like help with the process (e.g. preparing the documents in the right way, review of the business plan and cash flow forecast) then we can provide guidance via a dedicated delivery partner and the process should take far less time (circa 3-4 weeks). 

2. Short Term Loans

Aside from the government-backed scheme there are also some private lenders that will lend small amounts to start-up businesses (usually up to £25,000). These are at higher rates than the Start-up loans scheme and over a shorter term, but are still an option.

3. Asset Finance

Asset finance is a type of finance that allows you to purchase or lease business assets such as equipment and vehicles without having to buy them upfront. If a business already owns valuable assets, then asset finance can also be used to release cash from some of the assets' value. For new businesses, Directors will need to be a homeowner to access this type of finance.

4. Secured Loans

For larger funding requirements, property can be offered as security up to 65-70% loan-to-value (LTV). Secured loans can be available as a 1st charge, 2nd charge or even a 3rd charge.

5. Cash Advances 

Cash advances are suitable for businesses that take payments online or via a card machine, or have a subscription-based model. A cash advance is a short-term finance facility whereby a lender advances money and charges a fixed fee. Payments are then taken as a percentage of future card payments. The amount funded depends on the businesses monthly takings.

Cash advances have their pros and cons which you should discuss with your business finance advisor.

6. Invoice Finance

Invoice finance is suitable for businesses that invoice other businesses and usually when there are long payment terms involved. Although not the cheapest form of finance, it can be a great way of managing cash flow within a business.

There are multiple types of invoice finance and lots of invoice finance providers to choose from. Each lender has different requirements and criteria so selecting an appropriate lender for your needs is important.

7. Revolving Credit Line

A revolving credit line allows you to dip in and out of the funding, whilst only paying for what you use. Depending on how often you require finance during a month, this may be a more cost-effective option than some of the other options mentioned above. A revolving credit line is only available to UK homeowners and is usually limited to a £10,000 maximum credit line.

With so much choice emerging, businesses are increasingly choosing the wrong type of finance, which costs them more and doesn't suit their requirements. This is where the Choice Loan experts can help. 

 To find out which type of finance you may be eligible for and more importantly which is most suitable for your business requirements, please pick up the phone or complete the contact form on this page to get complimentary advice from our friendly, experienced advisors.