A business loan is money that’s lent to a business for business purposes. It will be paid back over monthly affordable instalments over a period of time with added interest. The business will receive a lump sum of money from a lender which they will be able to use how they like for their business.

The most popular types of business cash flow loans are Secured Business Loans and Unsecured Business Loans.

Secured Business Loans

Secured Business loans are protected by an asset such as a home, car, stock, bonds or personal property. The lender will hold the deed or title until the loan is paid in full. A secured loan means you are providing security that your loan will be repaid. From a lender’s perspective, they have your asset as collateral so if you can’t pay your loan back, they will be able to sell your asset to cover what you owe.

Unsecured Business Loans

Unsecured Business loans are the reverse of secured loans where you don’t need to put any collateral up. As the loan won’t be secured against, a lender will see this as a higher risk because if you were unable to pay the loan back, they won’t have a security net.

If you’re turned down for an unsecured loan, you may still be able to obtain secured loans.

What can a Business Loan be used for?

• Boost your cash flow
• Manage uncertainty
• Pay business expenses
• Grow and expand your business
• Help with payroll
• Cover revenue gaps
• Purchase new machinery, equipment or vehicles
• Purchase another business
• To franchise your business
• Consolidate multiple finance facilities 

These are some examples of what you could use your business loan for.

Invoice Finance is a way of lending money based on what your customers owe to your business. Unpaid invoices represent money that will be paid to you, but you have to wait for the payment terms to elapse. This could be anything from 14 days to 90 days or more. Invoice finance gets you most of the cash immediately, so you don’t have to wait to get paid. The concept is simple — rather than waiting days or weeks for your invoices to be paid by customers, lenders advance you most of the value immediately. That means you get paid faster for completed work allowing you to focus on running your business.

Invoice Factoring

Invoice Factoring is a financial product that enables businesses to sell unpaid invoices (accounts receivable) to a third-party factoring company (a factor). The factoring company buys the invoices for a percentage of their total value and then takes responsibility for collecting the invoice payments. Invoice Factoring is an increasingly popular form of alternative business funding and has the following benefits:

• Credit control services: the lender handles collecting payment from your customers.
• Factoring providers can credit check potential customers for you.
• Easier to secure for small or early-stage companies.

Invoice Discounting

Invoice Discounting is a form of short-term borrowing against your outstanding invoices. It is usually used to help improve a company’s working capital and cash flow position. With invoice discounting, you maintain responsibility for your sales ledger, payment chasing, and invoice processing:

• Invoice discounting can be arranged confidentially, so your customers will have no idea you’re borrowing against their invoices.
• You keep managing your own credit control and debt collection for customer accounts, helping you to build and maintain closer relationships with your customers.
• Invoice discounting is cheaper than factoring.

Businesses use VAT loans if they need to pay a VAT bill to the HMRC or they’re waiting on a rebate from the HMRC but need working capital sooner.

If your business need to pay a VAT bill, this can result in cashflow pressures, affecting investment opportunities and restricting working capital.

This is where VAT finance can step in with competitive rates and fixed monthly payments.

Avoid VAT Late Fines

A short term VAT loan will allow you to avoid late fees. If your payment is 16-30 days overdue, your late fine will be calculated at 2% of the VAT you owe on day 15.

Payments over 31 days or more, your first late penalty will be calculated at 2% of what’s outstanding at day 15 plus 2% of what is still outstanding on day 30. Your second late payment penalty is calculated at a daily rate of 4% per year on the outstanding balance and charged every day from day 31 until the outstanding balance is paid.

Does my business qualify for VAT Funding?

VAT funding is available for businesses that are:

• Registered limited company or LLP
• You’re a UK based and at least one director lives in the UK
• Trading for at least six months

However it will be subject to credit approval and the criteria can vary between lenders.