Most businesses will need a cash boost through borrowed credit at some point, and there are lots of ways you can go about doing this. Bank loans are no longer the be all and end all of business borrowing, so if you aren’t eligible for a bank loan, or if you need money fast, here are of the other ways you can borrow money for your business without having to rely on family and friends or a personal loan.
1. Credit card
Credit cards are a common form of acquiring capital as and when you need it. If you’re looking to borrow money for your business in case of unexpected expenses, a business credit card could be a good option. Not only are they incredibly convenient and easy to apply for, but you can get rewards from using your card (depending on which provider you go with), meaning you could earn benefits that other borrowing options don’t allow for. They are easy to use because they’re one of the few forms of business financing that is similar to personal finance, so if you’re new to the world of business funding, this could be a good option to get you started.
To find out more about the benefits of business credit cards, read our blog here.
2. Merchant cash advance
Merchant cash advances can be one of the most convenient ways of taking out and repaying credit for seasonal businesses and those that experience lulls at certain times of the year. Through a merchant advance, you’ll borrow an amount from a lender and agree a percentage to be paid back per card transaction you take. For example, if you borrow £5,000 with a 10% repayment rate, 10% of all card transactions you process will go straight to your lender until the £5,000 is paid off. If a customer spends £200 with you, £20 will go to your lender and you’ll retain the remaining £180. The more transactions you make, the more you pay.
3. Unsecured business loan
An unsecured business loan is a type of unsecured credit. This means when you take out the loan, you don’t need to use anything as collateral if you can’t pay for it. This makes unsecured loans a good option for businesses that don’t have any assets, or small business owners who don’t want to use their personal assets (e.g. house) as collateral.
They can be used for all types of business applications and allow you to borrow up to £500k over six years. That being said, some do require a company director or shareholder to act as a personal guarantor, and the interest rates tend to be higher with unsecured business loans compared to secured loans due to the fact that the lender is taking a greater risk.
4. Secured business loans
Secured business loans are the opposite of unsecured loans – they require you to have assets as collateral. If you can’t pay your loan, your assets will be seized. Generally speaking, the higher the value of your assets, the more money you can borrow. Secured loans tend to be more competitive and incur lower interest rates because the lender has more security, making repayments more affordable for most businesses.
5. Bridging loan
A bridging loan is used to provide a cash injection on a short-term basis. They’re commonly used to bridge a short period where you know an influx of cash is coming in the future. This cash may be used for a refurbishment of a property or to pay for stock or general working capital. They can be used for other things, too. Bridging loans carry high interest rates and are not long-term, so make sure you have a planned exit out of the facility.
6. Invoice finance
If your business operates on a payment term basis, there’s every chance you might run into cash flow issues between invoices being paid. This can mean it’s difficult for you to buy supplies and pay merchants until your clients pay you, which could be up to 90 days away. Invoice financing bridges this gap. Through this type of business finance, a lender will advance you up to 90% of the total of your outstanding invoices. When your clients pay their invoices, you pay the lender back what you owe plus interest.
7. Asset business finance
Asset finance is a good option for SMEs who need money to develop their business and take it to the next level. As the name suggests, it’s used to finance assets that you don’t have the money to purchase or lease upfront. The asset itself acts as collateral if you miss repayments, but the approval rate is good and money could be in your account in as little as 24 hours from approval. With this in mind, asset finance is a good option for small businesses who need money quickly.
8. Revolving credit facility
Finally is revolving credit. A revolving credit facility is akin to an overdraft and provides you with access to a set amount of money should you need it. You can use it whenever you want to, but you can only access what you haven’t spent which means you need to pay it off every month. You’ll also be paying interest on any money you do borrow, and the longer you owe it for will result in higher payments.
That being said, revolving credit can be paid in a lump sum if you’re in a position to do so. This makes revolving credit a viable safety net for your business in case of an unforeseen bill or asset repair that you might need to pay for.
How to Borrow Money for Your Business at Aurora Capital
These are some of the most common ways businesses borrow money. It should be noted that the above methods are mostly suitable for established businesses. If you’re starting a new business venture, a start up loan or investment from business angels could be a better way for you to fund your business. Government grants may also be available to help you with your new business idea.
If you want more information on the borrowing options that are available to you, including peer to peer lending, business grants, or angel investors, or if you want to learn more about how we can match you with your perfect lender, please get in touch.
We have lots of helpful resources about lending, and can even provide information on the financial conduct authority, how to boost your credit rating and improve your overall financial health, and which type of working capital could work best for you, so don’t hesitate to speak to one of our specialist advisors today.
