Top 10 Loan Options for Founders

When businesses need money to encourage growth, especially with recent restrictions on R&D, where can they get it? Loans are an excellent alternative to injecting your company with much-needed cash, and without handing over equity to do so.

Here are 10 loan options for business owners.

• Merchant Cash Advance

Merchant Cash Advances are particularly useful for consumer-facing businesses, such as hospitality and retail. While it’s a relatively new loan option, it’s becoming popular for being fast and flexible. A Merchant Cash Advance (MCA) involves the lender providing the business with a lump sum based on the volume of card transactions. The lender works with the card company that processes the business’ transactions to calculate the amount they will lend and a plan for the business to repay the loan. The sum you can borrow is based on the number of card transactions and the average amount spent on each transaction, and repayments are sent directly to the lender from the card terminal provider. There’s no need to juggle cash flow – MCAs adapt to your business.

• Small Business Loan

Cash flow can be a huge issue for small businesses. The Small Business Loan is designed to support businesses with under 50 employees, whether that’s a start-up or a mature business. The borrowed sum can range from £1,000 for general cash flow management to £500,000, which can support the business in expansion. Small business loans are a smart way to turbocharge growth, whatever the business type. The repayment terms will differ, but they are usually within 25 years. The repayment interest rate will depend on the type of loan, type of business, credit rating, if the loan is unsecured or secured, and other factors.

*This loan is only available for businesses with up to 50 employees*

• Start-Up Loan

Starting a new business is exciting, but not everyone has the capital or the investment to make it work. Start-up loans are a fantastic tool for more UK businesses, with owners from all kinds of socio-economic backgrounds, to launch and grow in the early stages. The UK government-backed initiative is suitable for businesses under 3 years old, the business owner must be at least 18 years old, must live in the UK, and have the right to work in the UK, and the business must be based in the UK.

The maximum amount a single applicant can borrow is £25,000 and they have five years to repay it. The minimum amount is £500. The interest rates are lower than normal business loans, too. While companies seeking investment from traditional business loans will have to provide historical business accounts, start-up loan lenders base their decision on the business plan and projected finances. However, the business owner must be able to prove they can afford to pay it back.

• Short-Term Business Loans

If you need quick cash, then a short-term business loan is a great option. With rising costs and a slowing economy, it doesn’t take a lot for a successful business to meet hard times. A short-term business loan provides a financial boost to help the business stay afloat. The repayment terms are much shorter than other business loans – around 1 year – so it’s also an alternative option for businesses that don’t want the burden of long-term debt. Additionally, the application for short-term business loans is typically quicker than other business loans, and businesses usually receive the money they need quickly – often in 24 hours or less after being approved. However, the total borrowing amount is usually lower, and the interest is usually higher. Borrowing businesses must be able to prove that they can it back.

• Invoice Finance

Invoice finance offers businesses a quick turnaround, with businesses receiving their loan within less than 48 hours. It’s suitable for small or medium-sized businesses with a minimum £30,000 turnover that is paid in invoices. In this case, unpaid invoices are the security, and invoice finance lenders can lend a sum of up to 95% of the business’ invoice value. The customer does not have to know that their unpaid invoice was used as security for the loan, and the transaction can proceed as usual.

• VAT Loans

Paying VAT bills is a part of running a business, but it can be a strain on finances. And not paying them on time, (typically quarterly), will result in penalties and surcharges. Business owners can take out a VAT loan to avoid these unnecessary costs, which could affect the business’s cash flow management. To be eligible for this loan, you must be a UK business with a turnover of £85,000+, and must have been trading for over a year. The borrowed sum will depend on the particular circumstances, but loans are available from £5,000 to £5 million. The interest rates vary, but the typical interest rate across a 3-month loan period is around 2.9%. A dependable loan provider, like Swoop, will ensure you get the proper funds.

• Asset Finance

Many fast-growing businesses choose the asset finance loaning option. It lets businesses buy the necessary equipment to turbocharge their launch or maintain their growth, such as business vans, IT hardware, aircrafts, and more. Equipment can be a hefty cost when buying them outright, so agreeing to smaller, regular repayments over a set period can lighten the burden.

• E-commerce Finance

E-commerce financing is a unique solution to cash flow issues. It is not a business loan, so there is no interest, and it doesn’t affect personal or business credit scores. E-commerce financing offers businesses capital investment without taking away any equity. Instead, the lender takes a percentage of the sales as repayment. It’s a great option for businesses that primarily receive payments for online services, such as Software as a Service (SaaS) businesses, Direct-to-Consumer (D2C) retail, online marketplaces, and subscription services.

• Islamic Business Loans

Islamic business loans are quickly becoming one of the UK’s most important forces, with holding assets of £5.4billion+. Islamic lending institutions do not support businesses involved in tobacco, alcohol, or gambling, and they do not charge interest. In Shari’ah law, charging interest is self-serving, and Islamic lending institutions believe in profit sharing. Islamic lenders also require businesses to provide something to the community, rather than simply making money. Islamic business loans exist to support local Muslim communities, but also to give them access to business funding that complies with Shari’ah (or Islamic) Law. Other standard business loans are considered haram.

*Business owners do not have to be Muslim to acquire an Islamic business loan*

• Business Loans for Women

Despite women making up over 50% of the UK’s population, only 18% of businesses are owned by women. Lack of access to funding is one of the biggest blockades for women funding businesses, but more lenders are working to close the gender finance gap with business loans for women. Business loans are diverse, and women can get access through start-up loans, invoice financing, asset financing, and more, through women-focused initiatives.

You can find business loans for women at Global Fund for Women, Female Founders Fund, UK Gov funding services, and more.

We wrote an article on advice for female founders here, which lists investment networks and accelerator programmes for women.

How Finerva Can Help

Applying for grants and loans can be a long, daunting process. But with the right support and guidance, you can receive the loans you need to propel your business into growth and success. While we, at Finerva, don’t provide loans, we do provide grant support. With so many grant and loan options, our expert team work with founders to understand which initiative would benefit them the most. We will collaborate with you on perfecting your application, increasing the chance of acceptance.