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Small business finance: What are my options?

Not sure which business finance route is right for you?

We'll walk you through the most popular finance options for small businesses and how they can benefit you.

Need help? Purple Accounts is a Master Certified Funding Advisor with Capitalise. You can find out more and get in touch for a no obligation chat.

Getting a business loan may sound simple, but making sense of the many other types of business finance options out there can be overwhelming, especially if you are unsure which one would be the best fit for your business. Then of course, you go to the bank and get the standard 'computer says no' reply.

Here's a short guide to popular business funding options and summary of the advantages and disadvantages of each.

Recovery Loan Scheme The Recovery Loan Scheme (RLS) provides financial support to businesses across the UK as they recover and grow following the coronavirus pandemic. You can apply to the scheme if COVID-19 has affected your business. Applications are open until 30 June 2022, subject to review.

Asset finance Asset finance helps your business to access the resources you need, like machinery, computers, office equipment, or vehicles, with an agreed monthly repayment over a period of time, typically one to three years. Once you’ve paid off the loan, you have different options. You can either own the asset or return it, often in exchange for newer equipment.

  • A great option for businesses that might find it hard to arrange unsecured finance.

  • It can help you to secure assets that may otherwise be out of your budget.

  • Repayments may be tax deductible, and you may want to get advice from your accountant on what this would mean specifically for your business

However, with longer terms, it could be more expensive than buying the asset outright, so it’s worth running the numbers to see if you might have the cash to purchase upfront.

Property Funding If you are looking to purchase or re-mortgage property or land for commercial use, property finance covers several investment options. It’s geared towards supporting experienced property professionals with residential property finance, commercial property finance, student accommodation finance, or mixed-use property finance.

Working Capital A working capital loan is a short-term loan that is taken out to facilitate the day-to-day running of everyday operations so that you can focus on business growth. Purple Accounts finding service can help you to search and compare lenders who specialise in working capital loans. Growth finance Looking to expand your business and enter new markets? Whether you’re developing new products, buying new equipment, or embarking on new sales initiatives, growth finance can help you generate more revenue and profit.

  • Gives your business the flexibility to take advantage of new opportunities.

  • Invest in new products or services.

  • Meet short-term funding gaps, for example, customers with long payment terms.

However, you’ll want to watch out for any early repayment fees, variable interest rates, and the security arrangement on the loan.

Invoice finance Invoice finance is a way of borrowing money against unpaid invoices for a fee. You typically receive up to 85% of the value of an invoice immediately, which can help to ease cash flow worries. The funder will collect the money owed from your invoices, and pay you the balance, less any fees. There are several types of invoice finance, including invoice factoring and invoice discounting, so it’s worth weighing up your options to see which would suit your business best – please ask for advice directly with an expert.

Whilst it can boost your cash flow and give you greater flexibility with working capital, you should be aware of the potential lengthy contracts, confidentiality issues and Annual Percentage Rate (APR) highs of 48%. Research and Development (R&D) Tax Credits

R & D tax credits are an HMRC initiative designed to support innovative businesses in science and technology. Eligible businesses can benefit from a tax relief of up to 33% of qualifying expenditure, or a cash grant. Get in touch to check your eligibility.

Trade finance Trade finance is an important external source of working capital finance. It’s a form of short-term credit typically used by companies that export or import goods. It removes the payment risk and supply risk – the exporter gets good sooner, and the importer benefits from extended credit.

  • Finance is typically secured against the goods or backed by an insurance policy.

  • More time to focus on growth activities.

However, it can be less accessible for newer companies as it’s based on having a good track record of operations and repayments and can become expensive if repayments aren’t made on time.

Pension finance Pension finance is a type of alternative finance. It sounds complicated, but it works like a business loan - money is borrowed from your personal pension(s) and paid back with interest by the business. You can raise funds based on the pensions accrued by one or more owners or directors. However, as pensions are your retirement savings, it comes with risk as your pension pot isn’t guaranteed to grow. Your borrowing limit is also dictated by your pension size.

Ready to start your business funding journey? Whether you’re looking to grow your business, make investments, or support your cash flow, our finance experts at Purple Accounts Small Business Centre are here to help you. We help you 1-2-1 with your application, so you don't have to worry.

Get in touch today for a chat about your business funding


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