Guide

Business financing options - an overview

Bank finance explained

There are several types of bank finance, with different packages available to suit your needs as your business requirements change.

Short-term finance

  • Overdrafts are used in conjunction with business bank accounts and are a flexible source of working capital for short-term needs. 
  • Bridging finance is provided by the bank to businesses to maintain cashflow while awaiting funds from grant cheques, drawdown of commercial mortgages or loan agreements, or other confirmed sources of future income.
     
  • Invoice finance includes factoring and invoice discounting. It offers ways to access working capital by unlocking the value of invoices. Interest rates and charges apply on the cash advanced.  Invoice discounting allows you to draw on funding secured against approved invoices, while in factoring you can sell invoices to your financier.

Medium-term finance

  • Term loans have a fixed or variable interest rate and mature over a one- to seven-year period. They are typically used to buy fixed assets such as property or machinery or other purchases of a capital nature. 
  • Asset finance and leasing options allow businesses to spread the ownership associated with buying assets. When you buy assets through leasing finance, the leasing bank buys the equipment for you to use, in exchange for regular payments.

Long-term finance

  • Commercial mortgages are provided by banks to finance the purchase of business premises. Types of mortgage available include repayment, commercial endowment or pension. You can get advice on providers of commercial mortgages from your bank's business adviser or a commercial mortgage broker.
  • Fixed asset loans are loans for assets that cannot easily be turned into cash - eg property, plant or machinery. The loans can be fixed for up to ten years. With this type of loan, the asset itself is the collateral and can be repossessed if you do not maintain repayments. 

For more information see bank finance.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.

Part of My New Business
Start your business checklist Show all