Business Financing

Business financing is something you might be thinking about if you run a business. There are various types of commercial finance you can use, and with the right finance companies working for you, you should be able to find funding that is right for your business.

What types of business funding are available?

There are different types of finance available for a business in the UK and the commercial financing you take out depends on the needs of your business.

Factoring

Factoring is a form of finance in which a company is issued a business loan against the value of its invoices. This loan is perfect for growing the company because as a business grows and issues more invoices it can realise the value of those invoices as soon as they are issued. Invoice Factoring bridges the gap a company has between issuing invoices and being paid.

Invoice Discounting

Invoice Discounting is similar to Factoring in that it allows a business to obtain finance against the value of its assets such as invoices. These funds are often used to help a businesses cash flow and to help the company grow. Invoice Discounting allows your business to retain control over its sales ledger which Factoring doesn't allow you to do.

Asset Based Lending

Asset Based Lending or Balance Sheet Funding is business financing that allows a business to raise money that is secured against the value of assets the business owns such as machinery and equipment or stock. As a loan like this is secured against assets the rates are usually less than unsecured business loans.

Asset Finance

Asset Finance allows a company to purchase assets without a significant outlay. The finance company provides the funds for the new assets in the form of a loan which is secured against the assets. The business then has the ability to pay the loan back in stages.

Company Finance - How to Choose the Right Option

If you are looking for finance for your business you might be aware that there are lots of different types of business funding available. The question then becomes which type do you choose?

Each business is different and will need finance to suit its particular needs. Most business finance companies can tailor company finance to suit the individual business.

Are you looking to raise funds against your assets?

There are various ways that you can raise funds against assets either that you own or want to purchase.

Factoring

Factoring allows your business to raise money against the value of invoices it has issued but have not been paid yet. If you offer goods or services on credit there will generally be a long wait between when you issue the invoices and when you are paid.

This can be a difficult time if your business has its own bills to pay or needs money for growing the company. Factoring allows you to borrow up to 90% of the value of your invoices. The company that provides the Factoring services will then take control of your sales ledger.

Invoice Discounting

Invoice Discounting is similar to Factoring in that it allows businesses to borrow against its invoices. The difference from Factoring is that Invoice Discounting allows a company to keep control of its sales ledger and debt collection.

Asset Finance

Asset Finance lets you raise finance against assets you are planning to buy. So instead of investing a large lump sum of your businesses own money you can raise finance using the security of the asset you are about to purchase. You can then pay back the loan in manageable payments.

Balance Sheet Funding

This type of business finance would allow you to raise finance against the value of the assets that you have on your balance sheet. The loan you receive is secured against these assets.

If you don't have any assets it can be more difficult to get a loan, especially if your business is new and doesn't have a record of having traded for very long.

It is more usual to have to put up some kind of security for the finance company that will be lending you the money as well as have a strong business plan.

Debtor Insurance

Does your business rely on a small number of major customers for a large part of your business? Have you thought about what might happen if they went out of business?

If the answer is yes then you should think about Debtor Insurance for your business. Debtor Insurance will protect you from a customer's insolvency or defaulted payment, essentially offering you bad debt insurance cover.

This kind of trade credit insurance is particularly important if your business does a lot of its trading with a small number of companies or relies on one company for large amounts of business. Your business could be at risk and bad debt protection could save your company from serious financial problems in the future.

Trade credit is an essential part of the way many businesses work and so insurance to protect bad debts is vital. All kinds of businesses fail and the number of failures in the UK each year is increasing. Business credit insurance in the UK is becoming increasingly important to have.

What does Debtor Insurance Cover?

• It protects you for up to 90% of your bad debts
• You will have creditor insurance to protect your business against your customers becoming insolvent and not being able to pay you
• Effective debt management so you can keep tighter controls on your debtors
• Claims because of insolvency are usually made within 30 days
• Claims are paid if you have a county court judgement in your favour after a UK company fails to pay their invoices

Who is eligible for Debtor Insurance?

You will be eligible to have debtor insurance if your business:

• Has a projected turnover of more than £200,000
• Has more than one customer
• Has credit terms that are unsecured
• Trades business to business

It is not only debtors in the UK that can be covered, but overseas debtors can be claimed against too if they default on payments. With Simply Business you receive comprehensive bad debt insurance to give you the freedom to run your business without worrying about your trade creditors.

Finance for Businesses - A Guide

Business Finance can be a tricky subject to navigate. How do you know what are the most cost effective business loans on the market? How do you know which finance companies will give you the best deal? Should you use asset based finance or try and get an unsecured business loan?

These are probably some of the questions you might be asking yourself. This guide aims to answer some of the questions you might have as well as giving you some information about business financing in the UK you might not have known.

What types of finance for businesses are available?

As you probably know, there are different ways to finance your business. When it comes to taking out a business loan there are lots of different options available depending on the type of business you are in and how you want to raise the finance.

Invoice Finance

This type of finance allows you to raise money against the value of invoices that you have issued to your customers. These are likely to be invoices that have a long period between their issue and when their payment is due.

There are two main types of invoice finance:

Factoring - Factoring allows a business to raise money against its invoices, giving control of its sales ledger functions such as debt collection to the Factoring company.

Invoice Discounting - This is similar to Factoring but it allows the business to keep control of its own credit control and debt collection.

Asset Based Finance

Asset based finance allows you to take out a business loan for commercial finance against the security of assets that you already have or are going to purchase.

There are two main types of asset based finance:

Balance Sheet Funding - This is where you will borrow against assets that are already on your balance sheet.

Asset Finance - With this type of financing you can borrow against whatever it is you are purchasing, using that as security.

How to get the Cheapest Commercial Finance

A very good way to get business funding that is the best value is to compare quotes from different finance companies in the UK. By doing this and looking at quotes side by side your business will be able to choose the company finance that is right for you at a price that suits you.

Once you have compared quotes you can then speak to a specialist who can help you choose the finance that suits your business and help you tailor it to your businesses individual needs if you feel that you have not done that already.

Taking out a loan that is secured against an asset of value such as machinery or property will make your repayments cheaper. Unsecured loans are more expensive and so if you have an asset you can use as security it is a good idea to use this.

Invoice Finance works in a similar way by securing your loan against the value of your invoices. Invoice Finance is great growth finance for your business because you can take out loans as the business grows and the number or size of the invoices you issue grows.

If you have no assets and no trading history an unsecured loan might be the option you could be looking at. This type of loan is often more difficult to obtain if you don't have security and will usually be more expensive. However it could prove very useful if your business is desperately looking to improve its cash flow.

What is Factoring?

Factoring companies advance finance to businesses that need to bridge the gap between when they issue invoices and when that invoice is paid. Invoice Factoring can raise finance for your business for up to 90% of the value of your invoices.

Who might need Factoring?

A company that supplies goods or services and issues invoices with a time period from the point of issuing the invoice to getting paid would be a candidate for Factoring services.

By Factoring invoices a company that is looking to grow steadily by increasing the amount that it borrows can do so in line with its sales. As a company grows and issues more invoices, through Factoring it is able to raise more money to grow the company.

For many businesses invoice Factoring can be vital because of the long lead time between issuing invoices and receiving payment. Companies still need to pay their own employees and suppliers and it can be extremely useful to be able to raise finance against invoices.

What benefits might your business get from Factoring?

• Raise finance to help the business grow
• Receive money as soon as you issue your invoices so you know when you are getting paid
• Flexibility to Factor some or all of your sales ledger
• Factoring receivables companies allow you to pass over management of your sales ledger to them

Why Choose Simply Business for your Factoring Services?

• Compare quotes or speak to an expert consultant who can give you the Factoring information and quote you need
• We can tailor your businesses needs to the right Factoring products
• Receive up to 90% of your businesses invoice value
• Factoring is easy to arrange with Simply Business

What is Invioce Discounting?

Invoice Discounting is a way for a business to improve its cash flow. Businesses that can use invoice discounting are those that offer credit to other businesses in return for goods and services that they produce.

Invoice Discounting works by allowing a company to receive a loan against the value of its invoices. It is different from Factoring because it allows the company to keep control over its sales ledger.

How can your company benefit from Invoice Discounting?

• You can receive up to 90% of the amount of your outstanding invoices
• Your cash flow is improved giving you more money to grow your business
• You keep control of your businesses sales ledger
• It is a cost effective way of improving your cash flow

Why choose Simply Business for your Invoice Discounting?

• Use the UK's largest invoice finance providers
• Compare quotes to find the best option for your business
• Speak to a specialist consultant who can match your businesses needs and find you the best quote
• You don't get charged for setting up the service

Invoice Discounting can be flexible, for example the amount you borrow can be increased with the assets that you take into account. Assets other than your invoices can be considered. You could use assets such as your buildings, land, stock or machinery.

The amount you can borrow will vary with the amount of security that you have in those assets together with what you think your business actually needs.

What situation might you use Invoice Discounting for?

Invoice Discounting can be especially good for businesses in a certain situation. Your business may find times when it needs extra cash and an alternative to bank funding might be appropriate.

If you have a lot of funds tied up that you are counting on to help grow the business Invoice Discounting can be very useful. You may have stock that has a high value, you might sell products or services on credit, you might also need to buy products quicker than you can actually sell them.

What to look out for when looking for business loans

If your business is still in the start-up stages it can be difficult to get an unsecured business loan.

Many banks and lenders require the business to be profitable or to have a minimum turnover before considering it for a loan.

Do thorough research on the options available and get quotes from a range of providers.

Interest rates can be high on unsecured loans so shop around to get the best deal.

Frequently Asked Questions

How much can I borrow?

The amount you can borrow will depend upon the financial state of your business and how much the business is turning over. The affordability of the repayments will also be a key factor.

Will I be accepted?

Read the small print offered by each lender and ask what the acceptance criteria will be. In the UK business loans are notoriously hard to get, compared to North America where the government underwrites a large number of loans.

How much will I have to pay back?

You will be able to work this out when you get your quote. Pay attention to whether the interest rate is fixed or variable. If it is variable you must take into account possible increases and decreases in the Bank of England base rate.

Can I take a repayment holiday?

Some lenders will allow you to take pre-agreed repayment holidays during the term of the loan.

Over what period can I borrow the money?

Loans can be borrowed over a time period to suit you. Longer term loans will usually cost less than short term loans.

What can I use the money for?

Most lenders will allow you to spend the money however you choose with no caveats but always read the terms and conditions.

Who can I borrow the money from?

Almost all high street banks offer business loans of some sort however there are an increasing number of independent lenders that will offer alternative forms of funding.

What happens if I default on the loan?

That depends upon the terms and conditions of the loan and the security the lender has requested. In most cases the lender will take out a debenture which entitles them to make a claim against assets covered under the debenture this could include any property over which the loan is secured on.

What other options do I have?

As discussed above, depending upon what you need the money for, there may be other more tailored types of finance on offer. Examples ate invoice finance, asset finance, trade finance and property finance. Always research your options and rates.

Invoice Discounting gives your business a commercial finance service that provides fast access to cash owed on invoices that have been raised by your company. While similar to a Factoring facility, Invoice Discounting differs as it allows a business more control over its debt collection and credit control functions.

How Invoice Discounting can benefit your business

• Invoice Discounting is competitively priced compared to overdrafts and business loans
• You can receive up to 90% of the invoice value, usually within 24 hours of raising it
• You have more working capital to put back into your business
• The facility grows with your business so there is no need to re-negotiate your overdraft or take on other types of debt
• You can react more quickly to market opportunities

Why get Invoice Discounting through Simply Business?

• We have access to the UK’s leading Invoice Finance providers
• Compare quotes online or speak directly to one of our consultants for free, impartial advice
• Our specialist consultants can match your business with the best facility for your industry, requirements and working style
• There is no charge for setting up your facility

Contact us now for a free consultation on 0800 072 6030

What are the main features of Invoice Discounting?

• Up to 90% of the value of your invoices can be advanced by the next working day
• Flexible finance that grows with your business
• Keep a tighter control on your debtors and credit control
• The facility is easy to set up through Simply Business

What does Invoice Discounting cost?

Fees for invoice discounting services are two-fold:

1. Service fees – covers the day to day servicing of your purchase ledger. Normally between 0.5% and 3% of your turnover.
2. Interest charge – charged against the amount of each invoice. Usually a fixed percent above the invoice finance company’s base rate.

If your business is having cash flow problems, late payment issues, or if you’re just short on time for managing your sales ledger then invoice finance could be the right solution.

Many thousands of growing businesses also use invoice finance to fund expansions, MBOs and MBIs. It is a flexible finance solution that grows with your business.

What is invoice finance?

Invoice finance is a type of lending facility where a lender will advance a business the same amount of money that they have raised on their invoices. Because the loan is secured against the invoice, it is paid off when the customer pays that invoice. The business only pays interest on the advance while the invoice is outstanding.

Who uses invoice finance?

Over 45,000 UK businesses of varying sizes have invoice finance facilities. Any business which raises invoices and gives its clients credit terms for payment can use this type of lending. This includes recruitment agencies, marketing agencies, hauliers, couriers, printing firms, manufacturers and many more.

Find out about the two types of invoice finance:

Factoring

Invoice Discounting

Factoring is a form of lending where a Factoring company advances you money against the value of your invoices as soon as they are issued. This enables you to improve your business cash flow and more easily manage your sales ledger.

You can normally receive up to 90% of the invoice value within 24 hours which means you’ll never suffer at the hands of late paying customers again.

How factoring can benefit your business

• Factoring is competitively priced compared to overdrafts and business loans
• You have more working capital to put back into your business
• The facility grows with your business so there is no need to keep increasing your overdraft or take out additional loans
• You’ll know when you’ll be paid, which helps you manage your cash flow
• You can react more quickly to market opportunities
• The Factor can manage your sales ledger and protect you from bad debts

Why get a factoring facility through Simply Business?

• We have access to the UK’s leading Factoring providers
• Compare quotes online or speak directly to one of our consultants for free, impartial advice
• Our specialist consultants can match your business with the best facility for your industry, requirements and working style
• There is no charge for setting up your facility

Contact us now for a free consultation on 0800 072 6030

What are the main features of Factoring?

• Up to 90% of the value of your invoices can be advanced by the next working day
• Flexible finance – Factor some or all of your sales ledger
• The Factoring company can take over management of your sales ledger
• The facility is easy to set up through Simply Business

What does factoring cost?

Fees for factoring services are two-fold:

1. 1. Service fees – covers the day to day servicing of your purchase ledger. Normally between 0.5% and 3% of your turnover.
2. 2. Interest charge – charged against the amount of each invoice. Usually a fixed percent above the factoring company’s base rate.

Simply Business can help you get funding for your business

Every type of business needs funding to survive. We’ve helped thousands of businesses to grow and thrive by finding them the right type of business lending facility for their individual needs.

What is a business loan?

A business loan can help you start a new venture, grow your existing business or consolidate existing debts. The loan can be secured or unsecured against assets of property and will have a variable or fixed rate of interest.

What types of loan are available?

• Invoice Finance (Factoring or Invoice Discounting)
• Balance Sheet Funding (also known as Asset Based Lending)
• Asset Finance
• Commercial Mortgage
• Trade Loan
• Personal Loan

A quick guide to Business Loans

Invoice Finance

• Invoice finance lenders advance money against your raised invoices
• Receive up to 90% of your invoice value within 24hours
• Factoring allows you to outsource your sales ledger management
• Invoice Discounting allows you to keep more control of your debtors
• Available to many small businesses as it is a secure loan

Asset Finance

• Best for capital expenditure requirements
• Borrow against the asset you are purchasing
• Asset Financing can include the options of buying or renting the asset
• Contract hire options on assets such as bespoke machinery or company cars may include ongoing maintenance and repair

Balance Sheet Funding (Asset Based Lending)

• Borrow against each asset on your balance sheet
• The lender reviews each asset on the sheet and assigns an individual interest rate and loan-to-value ratio.
• The value of the assets is then pooled and a loan facility offered to be drawn against
• This type of lending would include invoice finance

Commercial Mortgage

• Allows a business to borrow against any property it owns
• Can provide a substantial cash injection for a business
• Can be repaid with the sale of the property
• Regular repayments each month

Unsecured Business Loan

• More difficult to secure in the current financial climate
• Flexible finance that is repaid over the long term