With a new year often comes new business goals, and for most business owners, that means finding the monetary ways to turn those goals into reality. The vast majority of companies don’t have untouched capital laying around, certainly not after the financial impact of the pandemic, to use to float their growth plans, which means external funding is usually the route that needs to be explored.
There are lots of business funding options available, and it’s perfectly normal for businesses to need to take out finance of some sort to prop up their plans, be it for expansion, equipment upgrades, or anything else. Requiring business funding doesn’t mean your business is failing. In fact, it’s such a common practice that there are seemingly endless funding options at your disposal.
The downside to this is that it can be tricky knowing which type of finance is the right type for your business and your 2023 plans. If you’re struggling to know which type of borrowing may be best for your business, or if you simply want to learn more about available UK business funding options, read on as we explore the main options you’ll want to consider.
What is business funding?
Business funding, also known as business financing or a business loan, is when your business borrows money from a lender to pay for things like buying a new business premises, purchasing new equipment, hiring new staff, and solving short-term cash flow issues. Many businesses use business funding as a springboard to grow their business, and as such, there are lots of different types of business funding options available, as we’ll explain shortly.
Financial trends 2023: What should business know
There are two main aspects that are set to characterise 2023 and therefore that may influence your choice of business funding. The first aspect is that it’s the first year that Covid is the rearview mirror; at least from a business perspective. It’s set to be the year that certain industries, such as hospitality and tourism, can begin to fully recover from the effects of the pandemic. We still saw widespread disruption and chaos in certain sectors in 2022 thanks to Covid, but it’s likely that this will die down in 2023 and give businesses the chance to try and get back in good stead.
However, there is the cost of living crisis to deal with. Inflation is at an all-time high and many consumers simply don’t have disposable money to spend, meaning overall trade, particularly in the B2C sector, could be down. Not just this, but an increase in things like energy bills are set to hit businesses with brick and mortar buildings hard, as is inflation driving the price of goods and supplies up.
The theme for 2023 is a lot of economic uncertainty, and that’s where being aware of your business funding options can come in handy.
Business funding options
As mentioned, there are lots of different types of business funding options available. Here are some of the most common that you’re likely going to want to think about:
Recovery loan
The government launched a recovery loan scheme (RLS) for small and medium sized businesses to give them the money they need to grow their company and invest in its future. A set group of lenders work with the government to provide up to £2 million (£1 million for businesses in the NI Protocol), to businesses that are trading in the UK, have a turnover of less than £45 million, and that aren’t in financial difficulty.
Recovery loans come in several forms, including overdrafts and invoice or asset finance, with terms ranging from three to six years. To find out more about lenders and eligibility, visit the British Business Bank.
Unsecured business loan
An unsecured business loan is a good option for businesses that want to borrow money but that don’t have the assets or property to put forward as collateral. It’s the absence of collateral that makes the loan unsecured. Other than this, unsecured loans work in a similar way to any other type of standard loan; you agree an amount to be borrowed with a lender over a set period of time and pay the loan back in instalments, along with interest. Oftentimes, before the loan is agreed, a personal guarantee is needed (a business director agreeing to pay the loan if the business can’t).
You can use an unsecured business loan for all types of business needs, including cash flow issues, buying stock and supplies, paying bills, and refinancing existing debts. They’re ideal for companies who need a quick cash injection of less than £500,000, and they’re generally quick and easy to arrange through Aurora Capital.
Secured business loan
A secured business loan works like an unsecured loan, except you will use assets or property as collateral. Due to collateral being secured against the loan, it’s less risky for lenders and therefore you can generally borrow more through a secured loan than you can through an unsecured loan.
Like unsecured loans, it’s fast and easy to apply for a secured loan through Aurora Capital.
Asset finance
Asset finance is a type of funding that allows you to specifically buy equipment, machinery, or other assets that are important to the running or expansion of your business. Due to the nature of asset finance, it’s not as flexible as other types of funding because it can only be used for getting equipment. That being said, it’s a great way to get new kit without impeding your cash flow.
We work with a wide range of asset finance providers and applying online with Aurora Capital is easier than ever.
Merchant cash advance
A merchant cash advance, sometimes a PDQ cash advance, is a type of borrowing that mostly suits seasonal businesses or those with fluctuations in sales that may affect their ability to repay a set amount each month. With a PDQ cash advance, you agree an amount to be borrowed with a lender and decide upon a percentage that will be paid back on every sale that is made with a card machine. For example, you might agree that 10% of every card sale is paid back to the lender, so if a customer spends £100, £10 is paid towards the loan. If a customer spends £50, you pay back £5.
Merchant cash advances can be used for all sorts of business purposes, such as marketing, buying equipment, or refurbishing your shop. What’s more, they’re often more affordable because the more money you make, the more you pay. If you have a sales slump, you’re still only liable for the percentage agreed for each transaction.
You can apply for a merchant cash advance through Aurora Capital today, with decisions in as little as 48 hours.
Invoice finance
Invoice finance is a good option if your business agrees payment terms with clients, such as in the construction industry. For example, you might give customers 90 days to pay their invoice, but in the meantime, you need to buy supplies for a new job that has come in. However, until the outstanding invoice from the previous customer is paid, you might have a cash flow issue.
Invoice finance solves this issue. Lenders will pay up to 80% of your outstanding invoices, and you pay the lender back (with interest) when your customer pays you. Invoice finance is generally used as a means to solve cash flow issues in the short term, but it’s fast and easy to arrange with Aurora Capital.
Bridging loans
Bridging loans are high-value, high-interest, short-term loans. They’re not suitable for every type of business and require thorough forethought into an exit strategy due to the high interest and short term contract. Bridging loans are mostly used to buy property, such as at auction, until a mortgage application is processed. Then, when the mortgage goes through, it’s used to pay off the bridging loan, and that’s the exit strategy.
If you’re looking to buy a new business premises but don’t want to miss out, a bridging loan could be a good option. Speak to one of our advisors today to find out more about bridging loans and how to devise an exit plan.
Revolving credit facility
A revolving credit facility is a bit like an overdraft – it works in the same way. You agree an amount with a lender that you can dip into whenever you need it, and you agree to pay it back on a consistent basis. As long as you pay back what you’ve borrowed, you can continue to use the credit. The less credit you use, the more you have available.
It’s fast and easy to arrange a revolving credit facility with Aurora Capital, and we even work with lenders who specialise in helping businesses with a poor credit history in order to help build their credit.
Maximising your business credit: tips for borrowing more
Getting business credit is a lot like getting personal credit: the better your credit history is, the better your chances of getting approved for a loan. You need to show lenders that you can pay back what you owe. If you’re a new business, starting off with something like a revolving credit facility, dipping into it regularly and paying it off regularly can help you to start building your credit profile.
It’s important to remember that just because you have adverse credit, it doesn’t mean you can’t borrow anything. We work with a wide range of credit lenders, many of whom work exclusively with businesses that have poor credit. If you’re in doubt, speak to us to discuss your options.
How to choose the best funding for your business
Choosing the best funding for your business very much comes down to the type of business you have (small or big), how much you need to borrow, and whether you have any collateral you can secure against a loan. Always think carefully about repayment terms and what will happen if you default on payments, as well as what the money can be spent on.
Get access to business funding in 2023 with Aurora Capital
If you need help choosing business funding for your business, or if you want more information about any of the options listed above, please speak to a member of our team today. Alternatively, if you know what type of borrowing may be best for you, you can apply online with Aurora Capital now.
