What type of funding is best for my business?

Blogs 28 Dec 2023

Securing funding can be a vital step for businesses looking to expand, thrive, or manage their day-to-day operations. But with such a range of options available, it can be challenging to determine which type of business loan is best suited for your specific needs.

Business owner with laptop taking notes

Experts at FSB Funding Platform breakdown of the different types of business funding so you can make an informed decision when looking for funding.

How to choose the right type of funding

When you’re looking for a business loan, there are a couple of key factors you should consider to see which type is best suited for you.

For example, think about how you would prefer to repay the loan. You can opt for fixed monthly payments, which provide predictability but may strain your cash flow, or explore alternatives like a merchant cash advance, where repayment is tied to a percentage of your sales, offering greater flexibility, and easing the pressure on your finances.

Next, decide on the term length that suits your business's circumstances and future plans. Do you only need a short-term cash injection? Or are you looking for a term length spread over a number of years?

You’ll also need to decide if you want to offer security for your business loan. If you possess valuable fixed assets or property, consider using them as collateral to secure a lower interest rate. Additionally, if your business invoices customers, you could explore the possibility of leveraging your debtor book as collateral using invoice finance. Careful consideration of these factors will help you make an informed choice when selecting the right business loan for your needs.

What are the different types of funding?

Here’s an outline of the common types of business funding to help you see which option could be right for you:

Traditional term loans

Traditional term loans offer a lump sum upfront, which you repay over a fixed period with regular monthly payments. These can be ideal for businesses with established credit histories and a clear understanding of their funding requirements. Traditional term loans are versatile and can be used for various purposes, including equipment purchases, expansion, or working capital.

Revolving credit facility

A revolving credit facility can act similar to a credit card. You can borrow funds as needed, up to your credit limit, and only pay interest on the amount borrowed. This type of loan is often suitable for businesses with fluctuating cash flow or those looking for a financial safety net.

Merchant cash advance

A merchant cash advance is an option used by businesses that accept card payments. A merchant cash advance lender provides a lump sum upfront in exchange for a percentage of the business's daily, or monthly, card sales, plus a fee. They can be a fast way to access capital and can make repayments more manageable.

Invoice finance

Invoice finance allows a business to access cash through their outstanding invoices. This option can be particularly useful for businesses dealing with slow-paying customers, or seasonal fluctuations in revenue.

Asset finance

Equipment financing is specifically designed for purchasing business equipment, such as machinery, vehicles, or technology. The equipment itself serves as collateral for the loan, making it easier to qualify for, even if your UK business is relatively new.

Now that you’re familiar with the types of funding, it might be time to consider applying. FSB members can use FSB Funding Platform in association with Capitalise, providing your business with access to 100+ lenders. With a dedicated funding specialist on hand to support your funding journey, they can help to determine what type of funding is best for your business.

Funding made simpler

Fuel your business growth with an all-in-one funding platform for small businesses, provided by Capitalise. Apply for funding, review your financial health and check company credit scores.

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