Small Business Loans

Choosing the right business loan for your UK-based SME

UK Business Loans for SMEs

Cuthberts Toys opened its first shop in St Albans in 2009, giving children that magical toy store experience that has become a rarity. The retailer has since grown into an award-winning business with stores across Hertfordshire and an online shop.

Like many business founders, Managing Director, Kirit Kumar, is responsible for the success. Yet he’s also found that business financing was the biggest hurdle he’s had to leap to develop the venture. Luckily, he found Fleximize. Since taking out a loan, Kirit has built the core business, developed the brand and made Cuthberts a high street favourite among young families.

Small business loans are plentiful

Unfortunately, Kirit isn’t alone in citing funding as a real challenge, with many other entrepreneurs agreeing that accessing small business loans as a genuine barrier to business startup and growth.

Since the Great Recession banks have greatly reduced lending to SMEs, leaving many business owners confused about what funding options remain open to them. Actually, there are still some traditional lending options available alongside the flourishing alternative finance sector, created to meet the demand for funding in the small business space. From eBay loans and revenue-based finance, to sole trader loans and startup loans, the options are boundless.

10 Types of Small Business Loans

The abundance of small business funding in the alternative finance sector and traditional banking means there should be a loan out there that suits your business needs perfectly. Thorough preparation is a key to success, since lenders are meticulous in assessing applications, often basing their decision on borrowers’ professionalism, planning, honesty and ability to communicate clearly. Before you get to this stage however, take a look at our list of loans that we’ve selected, to help you pin point the best one.

1. Secured and unsecured business loans

Traditional business loans are usually split into two types. Unsecured business loans, which don’t require security and tend to have higher interest rates, and secured business loans, which is typically a larger size loan more suited to growing businesses. Your decision could be influenced by the legal status of your company – are you looking for a partnership company loan, or are you a sole trader or limited company? The age and track record of your company could also influence your choice. However, a flexible lender will look at the bigger picture when assessing your application so be ready to share the required information.

2. Revenue-based finance

Fleximize is the first provider in the UK of revenue-based funding, which is revolutionising SME finance. Differing from traditional lending, borrowers only repay a percentage of sales each month until their loan is repaid. So, essentially, borrowers only pay what they can afford, and it’s great for companies that are affected by seasonality, with peaks and dips in turnover throughout the year. This relatively simple, accessible and affordable type of loan is ideal for people looking for startup, partnership and limited company loans. Take a look at Fleximize’s own revenue-based funding or get in touch with us on: 020 7100 0110.

3. Peer-to-peer lending

With such a diverse array of SMEs emerging, alternative finance like peer-to-peer (P2P) lending has gained momentum among business owners looking for non-traditional loans. Based on the crowdfunding concept, small businesses seek funding via P2P platforms such as Funding Circle from multiple investors. It’s straightforward and low risk. In fact, our Ultimate Guide to Business Funding explains more.

“Because peer-to-peer lenders operate online, linking lenders and borrowers directly, their margins are thinner than those of high street banks, which means rates for borrowers and lenders are attractive.”

Elaine Moore, Financial Times, February 2014

4. Government business loans

The government’s Business, Innovation and Skills department is providing loans for UK SMEs, which make a tremendous contribution to the economy. With various programmes lending money at national, regional and local level for startups and growing businesses, this avenue is certainly worth pursuing.

5. Invoice financing

This sort of lending enables SMEs to release money based on outstanding invoices before they’ve been paid by customers. A third party lends money against unpaid invoices – this is typically between 80% and 85% of the total value.

6. Pension-led funding

Capital is released from funds locked in business owners’ pension plans. The pension-led funding approach also enables businesses to leverage the value of their intellectual property (IP). Based on an independent valuation, the IP can be purchased or leased by the pension fund, or used as security for a loan from the pension fund to the business.

7. Commercial mortgages

Purchasing rather than renting a commercial property may be a good option for your business, especially if you plan to make changes to the building or plan to operate from that base for the long term. Commercial mortgages can be approved for up to 80% of the value of the property on a term of up to 25 years. They can even include the option to pay interest only, at least for a set period of the loan. As with a standard business loan, research the different rates and options online.

8. Specialist business loans

Many lenders offer specialist loans to cover the purchase of equipment or vehicles, for instance. The benefit of opting for a specialist loan is that you can be very specific about the purpose of the funding, and therefore the precise amount you require and what you need it for. In fact, being able to outline a fixed need, cost and lending period can help your application, as it may be perceived as less risky.

9. eBay loans

Retail platforms like eBay, Amazon and PayPal have spawned a surge in e-commerce businesses, with many small retailers generating a comfortable income online. eBay loans (also known as e-commerce loans) are typically available through a quick, easy application process from alternative finance providers. Ideal for boosting cash flow, buying stock or investing in marketing, this kind of loan can help cushion the impact of unavoidable expenses.

E-commerce loans
E-commerce loans:

Quick and easy loans for online retailers.

10. Loans for young entrepreneurs

Record numbers of young entrepreneurs are starting up businesses, with many turning their passion into their livelihood. But with young people being at the very start of their business careers, they’re unlikely to qualify for large loans due to their short track record. The Prince’s Trust is here to help: together with the government-backed Start Up Loans Company, the charity is offering startup loans for young entrepreneurs between 18 and 30.

Where to go for more information

Our summary of the small business loans is just a starting point. For even more types of lending take a look at our free Ultimate Guide to Business Funding. Also, our Top Tips to Applying for a Business Loan provides practical advice, and if you prefer funding you don't need to pay back, our article on small business grants is a must-read.

Alternatively, look at Fleximize’s lending options or call our team to find out which loan could work best for you: 020 7100 0110.

Get started: Apply now