If you have just started a business or you are already on your business journey, there is one thing that you’re going to need to grow and scale – business funding. However, whether you’re looking for small business grants, venture capital or a business loan, securing business funding is not always easy.
While there are hundreds of different small business loan providers and government grants out there, finding the right one for you and securing enough business funding to get you on your way can be difficult. Even established companies can have a tough time securing a business loan. There are preparations to be made, connections to secure… not to mention the hurdles you have to go through before you can even access the new funding for your business!
With this in mind, in this blog we’ll be taking a look at how to fund your company with a range of business loans, from nailing down what documents you will need and starting the application process to finding your ideal lender. Soon, you’ll be accessing cash flow and watching your business succeed.
Your Business Plan: Get Laser Focused
Before any startup or small businesses consider which capital vendor is right for them, they will need to understand precisely how much business funding they’re going to need. To support your top level business plan, you will need to be laser-focused on cost calculations, and the kind of business loan you’re going to need before you start producing ROI and paying your loan back.
Not only will being precise help you get a better understanding of how much it will cost you to achieve your business idea, but it will also help inspire confidence in any lender that you approach.
Factor In Potential Risks
As you may already know, nearly 30% of all new small businesses fail in the first 2 years, and a lot of that can boil down to a business owner underestimating the amount of risk that goes into starting one.
Risk can involve anything from finance difficulties to disagreements with the people you choose to go into business with. So, remember to factor in every potential risk before you start searching for business funding.
Note: Usually, you’ll find that approaching an independent lender comes with far less risk. At Aurora Capital, we help to match you with your ideal lender, so this part of the funding process is already dealt with.
Remember, when you approach any type of lender to get funding to start a business or grow an existing business, your risk becomes their risk should they choose to provide you with funding. So, what should you do? Start by thinking about how much risk you’re willing to take on, and consider what the consequences may be should things not go to plan. Granted, starting any business comes with a significant risk, and planning for every possible situation is impossible – but try to make it clear to the finance company you are approaching that you are considering (and planning for) potential difficulties.
As 2020 likely taught a lot of new business owners, one of the most helpful things you can do when starting your own business is to expect the unexpected.
Look Over Your Credit Scores
Just as they would if you were looking to take out a credit card loan or a mortgage on your next home, business lenders are going to want a comprehensive view of your credit score. So, make sure everything is in good order before you approach a small business lender. This means checking to see if you have any errors against your name, such as loans that you have already paid off or don’t belong to you.
Remember, it’s hard to escape your credit history, so anything you may have been less than honest about will be plain to see when the credit report comes through. When it comes to business funds, honesty is the best policy.
Have Financial Documents to Hand
Making sure you have all of the documents ready to submit your application might just be the difference between a decline and an approval. At the absolute minimum, you should make sure you have the following documents and information ready before submitting your application:
- Business bank statements
- Latest company accounts
- A clear understanding of your credit score
- A clear understanding of how you intend to use the money
If you are a younger business and have been trading for less than 2 years, it may also be a good idea to have management accounts either prepared from your accountant or exported from Sage, Xero, QuickBooks etc, before you apply for business funds.
Next Steps: Small Business Funding Options
For today’s businesses, loan options tailored specifically for small, growing businesses are often the key difference between success and failure. So it quite literally pays to know as much as you can about small business loans and other funding options. In this section, we’ll cover each small business funding option and provide the necessary insights that will hopefully improve your chances of getting the funding your small business needs to thrive.
Growth Guarantee Scheme
The Growth Guarantee Scheme (GGS) is a governmental business funding scheme to support access to finance for small businesses across the UK, which will help them invest and grow.
Launched in July 2024, the GGS replaced previous pandemic debt schemes; Recovery Loan Scheme, Bounce Back Loan and CBILS, which closed on 31 March 2021 for new applicants.
Key takeaways of the Growth Guarantee Scheme:
- Suitability: Businesses trading for over two years and a turnover of at least £45 million.
- Purpose: Working capital, growth, stock, marketing etc.
- Amount: Loans range from £1k – £2m but are dependent on the lender.
- Term: Up to 6 years. Some lenders offer interest-only loans.
- Cost: Rates start from 2.9% per annum. Lenders sometimes charge an arrangement fee.
- Security: No personal guarantees up to £250k. 20% partial personal guarantee for loans that exceed this.
- Speed: Applications are processed within a day of receiving a full proposal.
Unsecured Business Loan
Unsecured business loans allow both new and established businesses to borrow money over an agreed repayment period and interest rate. It’s called an ‘unsecured’ loan because you aren’t required to secure your loan against a commercial or residential property. With that said, some lenders may require a personal guarantee. When obtaining an unsecured loan, it’s critical to understand that while it may be used for a wide range of purposes, it cannot and should never be used for personal use.
Key takeaways of unsecured business loans:
- Suitability: Businesses requiring additional funds for general business expenses.
- Purpose: Can be used for any business expense. (No personal use)
- Amount: Loans range from £1k – £500k, depending on the lender. Typically, you can borrow an amount equal to 2x your monthly turnover.
- Term: The capital can be spread over 1-5 years, depending on your credit rating, profit, turnover and trading time.
- Cost: Rates start from 6% per annum, and your lender may also charge an admin fee.
- Security: Personal guarantees needed from business owners. Homeowners and tenants are also eligible.
- Speed: Applications can be processed within one day of receiving a full proposal.
Secured Business Loan
Secured business loans are where a business’s property or an owner’s residential property is used as collateral. Therefore, the amount of money businesses can obtain from these loans will depend on the available equity in the property in question. Put simply, the more equity you have in your chosen assets, the more money you’ll be able to get.
With a secured small business grant, there’s less risk for lenders (due to collateral), which makes it easier to get approved. This also means businesses can borrow funds for longer periods, up to 30 years, which also benefits them as their monthly repayments won’t be as substantial.
Key takeaways of secured business loans:
- Suitability: Businesses looking to reduce or erase large amounts of debt or younger businesses who are yet to establish financial accounts.
- Purpose: A wide range of business purposes — e.g. working capital, debt consolidation, growth, stock and more.
- Amount: Loans range from £25k to £2m, depending on the lender.
- Term: Up to 30 years. Some lenders offer interest-only terms.
- Cost: Rates start from 4.95% per annum, depending on the age of your business, affordability and LTV.
- Security: Our lenders can secure a UK commercial or residential property.
- Speed: Applications can be processed within one day of receiving a full proposal.
Asset Finance
Asset finance is a form of finance used by businesses to acquire new or used machinery, equipment or vehicles. Asset finance is a loan based on the value of the assets offered as collateral. Examples of these assets include equipment and machinery, but ‘soft assets’ can also be used, such as IT software or less essential equipment. These assets will be assessed to establish the amount of funds a business can borrow against them.
Key takeaways of asset finance:
- Suitability: Businesses who need to purchase an asset but lack upfront capital. Also can be used to refinance existing assets in some cases.
- Purpose: Can be used to hire or purchase assets.
- Amount: Loans range from £1k–£2m, depending on asset type and affordability.
- Term: Up to 7 years, depending on asset type and creditworthiness of your business.
- Cost: Varying costs that are dependent on asset type.
- Security: Assets are secure until full repayment is made. Some lenders may ask for a personal guarantee.
- Speed: Applications can be processed within one day of receiving a full proposal.
Merchant Cash Advance
A merchant cash advance is a quick and easy alternative to an unsecured loan, however you must be taking card payments as a source of income. It allows the lender to advance up to 150% of your monthly card sales and take just a small % of each future transaction as a repayment.
This type of funding is a great option for businesses operating seasonally. This is because loan repayments are less during low turnover months and more substantial during high turnover months. And since most small businesses these days now accept card payments, it suits the needs of every industry.
Key takeaways of a merchant cash advance:
- Suitability: Businesses that earn a minimum of £5k per month via eCommerce payments or card terminals.
- Purpose: Can be used for all business expenses.
- Amount: Loans range from £2.5k–£2m, depending on the lender. Typically, you can borrow 2x of your total monthly card transactions.
- Term: As you only repay a fixed percentage of future card takings, the repayment term will vary.
- Cost: A single, fixed and pre-agreed fee — with no interest or APR.
- Security: Personal guarantees may be required from business owners. However, it depends on the lender.
- Speed: Applications can be processed within one day of receiving a full proposal.
Funding For Small Businesses: A Few Final Words
If you’ve found this blog helpful and you’d like to know more about taking the next step towards securing business funding via a loan or other means, get in touch with our friendly team today
At Aurora Capital, we understand that funding for your small business isn’t often in the hands of angel investors, and you probably won’t be looking for venture capital either. We support small businesses as well as established companies, providing a wide range of financial services to help you get the capital you need directly into your business bank account! We work with hundreds of growing businesses, helping owners to find the ideal lending partner to reach their goals. If you are looking to grow and expand your business, let us help you put your plans into action.
Note: If you are unsure about the various funding options available to you, don’t hesitate to get in touch with us for additional support. There is a lot of information online covering venture capitalists, SEIS (seed enterprise investment scheme) funds, SBA (small business administration) support and other business finance options, but you may find certain bank loans or other types of financing are not appropriate for your business.
Retain complete control by partnering with Aurora Capital – we’re funding businesses like yours to help them become high growth companies.
