What type of funding does my business need?
A business loan is often seen as the most straightforward form of finance for businesses. Banks and alternative funders often agree cash loans to businesses where repayment is in the form of the amount borrowed plus interest. Business loans can be secured (to guarantee repayment in case of failure to pay the lender the amount borrowed) or unsecured.
Equity investment is often seen as a difficult and rather complicated type of funding for businesses to obtain. Investors (including venture capital firms, private equity houses and angel/ seed funders) put cash into a business in return for a percentage stake in the business. Generally speaking, equity investors will often recoup their money when they sell their shares at a later stage (for a significant return on their initial investment), or more commonly, when the business is sold in the future.
Asset finance is a type of debt (or loan). Often businesses need to purchase expensive assets, which could be anything ranging from cruise ships to chemical manufacturing equipment. Asset finance can either involve a funder purchasing the equipment and loaning it out to a business for an agreed length of time, or agreeing a repayment plan which allows the business to own the asset afterwards (a bit like a fixed mobile phone contract).
Invoice finance takes the stress out of chasing invoice payments from buyers, clients and importers, as well as preventing cash flow or working capital strains. Invoice finance (also known as export factoring) involves a financier providing funds against invoices or accounts receivable (usually around 80-90% of the actual value).
There is no one answer to this question, but it is best to look at the needs of your business to then see if a particular finance type is suitable. Use the table below to compare different finance types.
Business Eligibility
- Time to get finance?
- Do I have to give equity?
- Years trading/ accounts?
- Personal guarantee required?
- Typical monthly interest rates
Secured Loan
- 2-3 months
- No
- 0 years
- Sometimes
- 0.5-1%
Commercial Mortgage
- 4-6 months
- No
- 0 years
- No
- 0.25-2.5%
Equity Investment
- 6-12 months
- Yes
- Normally 2+ years
- No
- N/A
What type of funding does my business need?
This is best answered through a number of questions and enquiries about your business:
- what you are trading in;
- frequency of trade;
- value of trades;
- whether you can finance all of your trades;
- speed at which you need to fulfil orders;
- strength of relationship with trading partner;
- what countries you are trading with;
- is cash collection needed in the countries you are trading with;
- what your costs are and term that funds are needed for;
- is there a funding gap;
- what are the current payment terms and what do existing dealings look like; and
- whether your business is seasonal.
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