Types of funding
Asset financing is a solution that businesses can use to grow and develop their business, even if they don't have the capital of their own to hand.
Depending on your business, the assets that you acquire financing for could be anything from a fleet of vehicles, machinery, office equipment and even IT.
For many companies, asset financing offers a more versatile solution than standard borrowing options such as bank loans. The main advantage is the fact that it allows you to use and obtain essential equipment that your business needs with flexible repayments over the expected working life of the asset.
Secured business loans
Secured business loans are a type of business finance that requires you to put forward an asset - usually a property - as security for a loan. Secured loans often come with lower interest rates than unsecured loans as they represent less risk for the lender. They may also give you access to a larger loan amount over a longer term.
However, they come with the added risk that you could lose your property (often your home/business premises) if you struggle to keep up with the payments.
Unsecured business loans
Unsecured business loans are those that don’t require security. Here are some of the main types of unsecured business loan – note that this is not an exhaustive list:
These tend to be offered by a major high street banks. They have been more difficult to obtain in recent years but are still a popular choice with established businesses with solid credit ratings.
Alternative business loan
Many alternative lenders and online banks will now offer business loans, usually through online-only platforms. Rates, terms and eligibility requirements differ from lender to lender.
Short-term loans are straightforward business loans that are often offered over periods of months, as opposed to years. Cash is usually made available quickly, but interest rates can be high and loan amounts are often limited.
Online platforms matching willing lenders (often either private equity investors or members of the public) with businesses that are seeking loans are a popular new finance model. Rates can be preferable, but eligibility might be relatively strict.
Many of the above facilities can be repaid early with no repayment penalties.
If you need a mortgage to buy a non-residential property for your business, you’ll be looking to get a commercial mortgage. Although similar to residential mortgages in many ways, there are notable differences that you may not be aware of.
Commercial mortgage providers range from specialist lenders to high street banks and each will offer different terms and loan amounts, as well as having varying lending criteria.
When comparing commercial mortgages, there are some factors that you’ll need to consider:
How much you can borrow
Lenders will decide how much to lend you based on criteria such as your deposit amount, your credit record and business finances and the value of the property you are purchasing. It is usual for lenders to restrict the amount of funding to say 75/80% of the property value – Often referred to as a term of loan to value or LTV.
How long you can borrow for
Generally, commercial mortgage loan terms range from around 3 years to 25 years.
Rates can be fixed to give certainty of payment and assist budgeting.
As well as checking your finances, the lender is likely to want to value the property you are purchasing to ensure it is worth enough to cover the value of the loan if you cannot afford the repayments.
If you have a large deposit to put forward, you may find it easier to secure a commercial mortgage from a lender and rates may also be lower than if you require a higher loan-to-value. This is something to take into account when choosing between commercial mortgages. It’s important to note that, as with a residential mortgage, you risk losing the property if you fail to keep up with scheduled repayments.
Commercial mortgages can be used for various types of property:
- Residential investment property
- House of multiple occupation (HMO’s)
- Retail and Commercial units
- Professional practice premises
- Hotels and licensed premises
- Care homes
Bridging loans are a short-term form of funding that can be used to "bridge" a gap between finance becoming available, and a purchase that is required immediately. Commonly, bridging loans are repaid within a maximum of 12 months, and are often used by developers and property investors who want to take advantage of time-sensitive market conditions and investment opportunities.
The interest rates charged are usually higher than longer term finance but are very useful to secure the “asset “ quickly or if it needs to be refurbished or occupied before refinancing on more favourable terms later on when enhanced value has been added.
Speed is critical in bridging funding and it is not uncommon for funding to be arranged in a number of working days.
Waiting for invoice payments in one of the leading causes of financial stress in businesses of all sizes. Invoice finance is designed to alleviate this cash flow pressure by allowing you to continue business-as-usual, despite waiting on due invoices.
Invoice finance is a great option for businesses that sell products or services to other business, those who invoice for delivered goods or completed services.
Whilst not exclusive to, preferred sectors tend to be in haulage, manufacturing, recruitment or business to business sales.
Main characteristics of facilities include
- Releasing up to 90% of invoices to aid cash flow within 24 hours of receiving them
- Provides finance secured against your debtors which can negate the need for other security or personal guarantees
- It can offer bad debt protection to protect against customer insolvency
- Can offer credit advice on new clients and/or take over the management of your sales ledger
- Can be used for both UK and Export sales
- As your business grows your facility can grow with you
- Can be used for any business need not just cash flow. For example you can use to buy machinery, contribute to a business property purchase or even expand and acquire another business with these funds
Acquisition funding is necessary when a business is looking to grow by purchasing another business and needs to raise funds to complete the transaction. Often using a number of financial products already mentioned in a “financial cocktail”.
Some acquisition loans can be financed with a package of senior bank debt and private investment. At Stephensons We work with experts in corporate finance that fully understand this specialist marketplace. They can sometime structure a deal that can significantly reduce the amount of equity required to be raised as part of the overall acquisition funding structure.
The corporate law team at Stephensons can work with your chosen advisers to ensure than any purchase structure devised can also be implemented smoothly from a legal process.
You are of course, free to approach independent legal advisors; but should you wish to instruct us we act completely independent to any broker and receive no financial benefit/interest as a result of any introduction that may be made.
Getting in touch
Business Development Manager
Call 0333 321 4258