One of the most important decisions that any small business in the UK can make is determining what type of finance will be best for their business.
This should be viewed in the same way that many other business decisions are made, such as your cash flow needs, property requirements, the type of credit card and any leasing deals, by understanding the individual components of each type of finance and the providers that promote them.
In analysis the different funding types it is useful to think of the following details:
- What do I want this funding for?
- How soon do I need it?
- How long do I want to pay it back?
- What is my credit history like, both for the business and for me, personally?
- What impact will there be on my business if I don’t get the funding I want?
- How will the expected repayments of this funding affect my cash-flow?
Once a business owner starts to build up this picture it will help in their approach to the market to determine whether they want short term finance or long-term finance.
If you want to buy a new piece of machinery, or new computers, then maybe asset finance is the first place to look. If the business is seasonal, then maybe a revolving facility would suit better.
All these issues can influence the choice of both funder, funding type and the provider of a business loan.
You don’t have to be a financial expert to consider many of these basic pieces of information. As a business owner, you may already have determined these elements because you have used different types of funding in the past, such as a commercial mortgage. But this is not always the case and it is important to remember that the landscape of funding types is changing constantly with new products and new deals coming onto the market with regularity.
This won’t just affect the cost of borrowing but often the term and nature of the finance for your business.