Who this covers: trading businesses with a gap between paying suppliers and wages and being paid by customers: trades, transport, manufacturing, wholesale, professional services, hospitality and retail.
What lenders do differently
Overdraft and line of credit
Secured against property or the business, sized to about a month of turnover, interest only on the drawn balance. The cheapest standing facility and the slowest to set up; assessed on financials, conduct and security.
Invoice finance
An advance of 70 to 90 per cent against approved invoices to commercial customers, repaid when the customer pays; disclosed or confidential. Grows with turnover, assessed on the debtors' quality rather than the business's property. Suits 30 to 90 day terms and growing businesses.
Unsecured business loans
Fast, from fintech and some bank lenders, three to 36 months, assessed on bank statements and turnover; rates well above secured facilities and often quoted as a factor rate. Useful for a defined short gap, expensive as a standing arrangement.
Trade finance, premium funding and equipment
Trade finance pays suppliers and is repaid when goods are sold, suiting importers and wholesalers; insurance premium funding spreads the annual premium over ten instalments secured by the policy; equipment finance funds assets over their life rather than from cash. Each takes pressure off the working capital facility. The working capital calculator sizes the facility and shows which line covers which part.
Worth knowing before applying
The cheapest facility is usually the one secured against property, which brings the family home into the business; a factor rate on an unsecured loan converts to a much higher annual rate than it looks; and the facility should match the gap it covers rather than the largest amount offered.
The tools that fit
- Business and asset finance
- Chattel mortgage calculator
- Commercial property finance
- Working capital and overdraft calculator
- Equipment finance calculator
- What lenders ask for: checklists
Not sure whether the business needs an overdraft, or how big: the working capital calculator works it out from sales, payment terms and stock, with presets for a typical business like yours.
Policies on all of the above differ lender to lender and change without notice; the value of the conversation is knowing which lender's policy reads your payslip best on the day. Understanding how your income is read before you apply is what makes the application calm.