What is a small business loan?
A small business loan is a finance product designed to help small to medium-sized businesses run and grow.
Several financing options are available to small businesses, and the right one for you will depend on your needs and financial situation.
Financing options for your small business loan
The right funding is essential for small businesses looking to grow, manage cash flow, or invest in new opportunities.
Small businesses rely on flexible funding solutions to take advantage of new opportunities, scale quickly and stay competitive in their industry.
Understanding your borrowing options can help you choose the best solution for your business and future plans.
Unsecured business loans
Unsecured business loans can provide fast access to funding without using collateral. This makes them ideal for small businesses that don’t have significant assets or who don’t want to tie up their property or equipment as security.
These loans can be used for almost any business purpose, from purchasing stock to covering short-term operational costs.
Some lenders may ask for a personal guarantee. This means the business owners could be personally liable for repayments if the company defaults.
Secured business loans
Secured business loans require collateral, like property, equipment, or other valuable business assets.
This can allow you to borrow larger amounts at lower interest rates, making them ideal for small companies looking to make significant investments or secure long-term growth funding.
Because the lender has security over the asset, the risk is lower, but failure to keep up with repayments could result in the loss of the asset.
Merchant cash advance
A merchant cash advance offers a flexible way to borrow money based on your business’s future card sales.
Instead of fixed monthly repayments, you repay a percentage of your daily card transactions, making it useful if your business has fluctuating incomes.
This type of financing is beneficial for retail, hospitality, and service-based businesses that process regular card payments.
Repayments adjust in line with business performance, so you will repay less during quieter periods, helping to ease cash flow pressure.
Invoice finance
Invoice finance can allow your business to release cash tied up in unpaid invoices, meaning you won’t have to wait 30, 60, or even 90 days for customers to pay.
Lenders can advance up to 90% of the invoice value upfront, with the remaining balance received once the client settles the invoice, minus lender fees.
Invoice finance can help your business maintain a healthy cash flow, especially if your industry has long payment cycles.
Asset finance
Asset finance could help your business buy equipment, machinery, or vehicles without making a large upfront investment. Instead, you spread the cost over time, maintaining cash flow while getting access to the assets you need.
The equipment itself acts as security for the loan, often resulting in lower interest rates compared to unsecured borrowing.
Asset finance is a good option if your business wants to expand or upgrade without impacting day-to-day working capital.
Revolving credit facility
Like a business overdraft, a revolving credit facility gives your business ongoing access to funds. You can access funds when you need to, repay, and borrow again within an agreed credit limit.
Interest is only charged on the amount you use, making it a flexible and cost-effective way to manage your finances, cover unexpected expenses, or support seasonal fluctuations in cash flow.
How to use small business finance to grow your business
If your small business wants to scale and improve operations, the right finance could be the answer.
A small business loan could provide the financial support you need to invest in growth without straining cash flow. Here are some ways a small business loan can help your business grow:
Grow your team
Expanding your workforce can be one of the best ways to scale your business, improve productivity, and increase your services.
Whether you need to hire sales professionals, skilled technicians, or customer service representatives, a small business loan can provide the funding needed to cover recruitment costs, salaries, and training.
Investing in the right people allows you to expand operations, enhance customer experience, and drive long-term growth.
Manage day-to-day expenses
Cash flow fluctuations can be challenging, especially for small businesses that experience seasonal demand or long payment cycles.
A small business loan can act as a financial buffer, helping you cover essential expenses such as rent, payroll, and supplier payments during slower periods.
This ensures your business remains operational and can take advantage of opportunities without financial constraints.
Expand premises or open a new location
If your business has outgrown its current space or you’re looking to move into your first office, securing small business financing can help fund office expansion, renovations, or even the opening of new locations.
A well-located and well-equipped workspace can help attract more customers, grow your workforce, and create a stronger brand presence in your industry.
Upgrade equipment and invest in technology
Keeping up with industry advancements is crucial for business growth and staying competitive. A small business loan can help you invest in new equipment, upgrade outdated technology, or implement software solutions to improve efficiency.
Whether purchasing machinery, upgrading IT infrastructure, or adopting automation tools, access to funding ensures your business stays competitive and can operate at peak efficiency.
How to choose the right finance for your small business
Choosing the right finance solution depends on your business needs, financial situation, and long-term goals.
Different types of funding are suited to different needs, so it’s important to match your requirements with the right borrowing option.
- Managing cash flow fluctuations: If your business struggles with cash flow due to delayed payments or seasonal income variations, a revolving credit facility or invoice finance could be the right solution.
- Funding business expansion: If you’re looking to grow your business, whether through hiring staff, opening new premises, or increasing production, an unsecured business loan or secured business loan can provide the capital you need.
- Purchasing new assets: If you need to invest in equipment, machinery, or vehicles without making a large upfront payment, asset finance allows you to spread the cost over time while preserving cash flow.
- Sales-based repayments: A merchant cash advance could be a good fit if your business takes card payments and wants a funding option that aligns with revenue. You repay through a percentage of daily card sales, making it a flexible option for businesses with fluctuating income.
Every business has unique financial needs, and choosing the right finance option is key to sustainable growth. At Aurora Capital, we help small businesses find tailored funding solutions that match their goals.
Speak to us today to explore your options and secure the right financing for your business.
How to qualify for a small business loan
The acceptance criteria for each financing option are different, so whether your business qualifies depends on the type of loan you need.
However, at Aurora Capital, we work with small businesses that meet the following criteria:
- More than 6 months of trading history
- £100,000+ annual turnover
- UK based
- £10k – £5m funding requirements
- Good credit history
You could still be eligible for business funding if your small business is a startup with a limited credit history or has a low credit score. We work with several lenders that can offer finance to companies with poor credit.
How much can I borrow with a small business loan?
The amount you can borrow with a small business loan depends on factors such as your turnover, credit history, and the type of loan you choose.
- Unsecured business loans: Typically range from £10,000 to £500,000, depending on your financial profile.
- Secured business loans: They allow you to borrow larger amounts, up to £2m, as assets like property or equipment back them.
- Invoice finance and merchant cash advances: These are based on your revenue, so borrowing limits are tied to your outstanding invoices or card sales.
Lenders assess your ability to repay before determining the loan amount, so having a strong financial track record can increase your borrowing ability.
How much does a small business loan cost?
The cost of a small business loan depends on several factors, such as the loan amount, interest rate, repayment term, and whether the loan is secured or unsecured.
Interest rates can vary based on your credit history, business performance, and the lender’s criteria. Some loans also come with additional fees, such as arrangement fees or early repayment charges.
Secured loans typically offer lower rates, while unsecured loans may cost more due to higher risk. At Aurora Capital, we help you find the most competitive rates and terms to ensure affordable financing that suits your needs.
How long does it take to get a small business loan?
The time it takes to get a small business loan depends on the type of finance and the lender’s approval process.
Unsecured loans can often be approved within 24–48 hours, while secured loans may take longer due to asset valuation and legal checks.
Invoice finance and merchant cash advances can also be arranged quickly, sometimes within a day. Providing complete documentation and meeting lender requirements can speed up the process.
Can I get a small business loan with bad credit?
You can still get a small business loan with bad credit, but your options may be more limited. Some lenders are willing to offer finance, though this may come with higher interest rates or require additional security.
Secured loans, where you provide assets as collateral, can be easier to get with bad credit. At the same time, merchant cash advances and invoice finance focus more on your revenue than your credit history.
In some cases, lenders may ask for a personal guarantee, meaning you’ll be personally responsible for repayments if the business can’t meet them.
Aurora Capital works with various lenders to help businesses find funding solutions that suit their circumstances.
