Small Business Loans

Business loans for UK small businesses. What are your options?

Since the recession of the late 2000s and early 2010s, banks have greatly reduced their lending to British SMEs, leaving many business owners confused about what funding options remain open to them. However, there is still plenty of funding available to SMEs in the UK, both from traditional sources and the flourishing alternative finance sector, which was created to meet the demand for funding in the small business space. From eBay loans and revenue-based finance, to peer-to-peer lending and startup loans, British business owners have never had more choice when it comes to business finance.

Types of small business loan

The abundance of small business funding available from alternative finance providers and traditional high-street banks means there should be a loan out there that suits your business needs perfectly. Thorough preparation is the 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, it's worth taking a look at the range of loans available to small businesses, which should help you pinpoint the best funding solution for your business.

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 are typically higher value loans 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.

Revenue-based financing

Fleximize is the first provider in the UK of revenue-based financing, which is revolutionizing SME finance. Differing from traditional lending, borrowers only have to repay a percentage of sales each month until their loan is repaid. So, essentially, borrowers only pay what they can afford, meaning it’s great for companies that are affected by seasonality, with peaks and dips in sales 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 financing or get in touch with us on 0207 1000 110.

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 concept of crowdfunding, small businesses seek funding from multiple investors via P2P platforms such as Funding Circle and Zopa. It’s straightforward and low risk. Check out our Ultimate Guide to Business Funding for more information on P2P lending.

“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

Government business loans

The Department for Business, Energy and Industrial Strategy (previously the Department for Business, Innovation and Skills) provides a number of loans for UK SMEs. And with various programmes lending money at a national, regional and local level for startups and growing businesses, this avenue is certainly worth pursuing.

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.

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.

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.

Specialist business loans

Many lenders offer loans to suit businesses in certain industries, or 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 that you require. 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. Construction, retail, manufacturing and hospitality are among the industries covered by these specialist loans.

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:

There are a number of quick and easy loans available to SMEs operating in the super competitive online retail space

Loans for young entrepreneurs

Record numbers of young entrepreneurs are starting 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, together with the government-backed Start Up Loans Company, offers startup loans for young entrepreneurs aged between 18 and 30.

Where to go for more information

This summary of small business loans is just a starting point. Our free Ultimate Guide to Business Funding provides more detail on the types of funding listed above, as well as other sources of business finance, while our top tips article offers practical advice on applying for a business loan.

Alternatively, take a look at Fleximize’s lending options, or call our team on 0207 1000 110 to find out which loan could work best for your business.

Get started: Apply now