Most business owners of SMEs are familiar with traditional financing options, such as business loans and credit cards, yet take-up rate is low. Figures from the UK government for Q4 of 2024 show just 46% of SMEs were using external finance, and over 50% of businesses that invest exclusively use internal or personal funds for finance.* SPF Private Clients have recently launched into the Business Finance space, with the recruitment of Tom Naidu and Craig Ashton to drive this offering into the SME market.
“There’s a whole world of alternative financing solutions that SMEs can leverage to fuel growth, manage cash flow, and navigate challenging periods” says Tom Naidu, commercial finance adviser at SPF Private Finance. “In my experience most business owners often aren’t aware of all the finance options available and so may default to the more common options such as unsecured loans or credit cards.”
Beyond the basics: Understanding your finance options as a small business
When it comes to business funding, many SME owners limit themselves to what they know. But with further investigation and a consultative approach with a broker such as SPF Private Clients, numerous alternatives are revealed. Here, we outline the principal options:
Business Loans
You can have various types of business loans, whether they’re short-term, long-term, or Revolving Credit Facilities. Most reasons for funding are to plug a gap where there is a short fall come the end of the month, where a short-term business loan or Revolving Credit Facility may be useful. If you were looking to fund an acquisition or a growth opportunity, then a longer-term business loan may be a more suitable and viable option.
Craig Ashton, commercial finance adviser at SPF Private Clients explains “Business loans can help when there is pressure on cashflow, such as paying wages, suppliers, VAT / Tax bills, stock purchases, refinancing existing debt, management buy outs, and many others. Revolving Credit Facilities is where you can payback and draw down funds throughout the term of the product.”
For businesses that take regular online or card payments, there’s another option, a Merchant Cash Advance (MCA). In this instance, it’s a loan against the income you’re generating through your online or card payments. Seasonal businesses hugely benefit from this type of product as there are no set weekly or monthly repayments, the loan is paid back through your future sales, helping you manage your loan through your quieter periods through the year or whether you simply only take online or card repayments.
Invoice Finance
For businesses struggling with cash flow due to long payment terms, invoice finance offers a powerful solution. In its simplest form, it allows businesses to secure finance against unpaid invoices, which is particularly useful for cash flow when, for example, some Debtors work to 30 / 60 or 90-day payment terms.
Tom explains “Take for example a recruitment company that provided staff for a big sports brand, working on 90-day credit terms. In this situation, a lender can step in and look to lend up to 95% of the outstanding invoice, knowing there is the security of the debtor being a big sports brand and therefore unlikely to not make payment. This gives a huge level of comfort that the invoice will be paid, therefore the loan getting repaid.”
Asset Finance
Asset finance is an option when it comes to bringing in vehicles, plant, machinery and any other tangible assets into the business. Lenders can also finance the less tangible assets such as office and shop fit outs and equipment.
Craig explains “Asset finance can be used when a business needs to fund the purchase of assets but hasn’t got the money to pay for them right now, with the asset itself serving as security for the loan. If you already have the assets in the business, then refinancing these can be a way of bringing additional capital into the business to help cashflow, whether they are unencumbered or financed already.”
Business finance can make a real difference
A consultative approach can help numerous businesses navigate complex financing challenges. “For example,” says Tom, “We’ve recently completed a loan for a business that builds and sells simulators for F1 drivers. They’re moving to a new contract with a go-karting company with centres across the UK, so they needed finance now to be able to purchase the simulator construction parts to be able to later sell them on. Instead of depleting their cash reserves, we were able to secure them finance for £250,000, and they were able to put the contracts out for the parts and pay their suppliers. The benefit being that should things go particularly well, they can pay the loan back early, but it allows them to grow the business quickly while not impacting their cash flow”.
When to consider alternative financing
According to Craig, businesses typically seek financing solutions in two scenarios: business growth, when capital is needed to fund expansion plans; and for managing overhead costs. “When businesses need to lower their overhead costs, alternative financing can help restructure existing obligations,” says Craig. “An effective ways to lower costs is to expand the terms. If a business has 12 months left on a facility, we potentially put a new facility in to pay the old one off and move it to a new five year period, which will significantly lower the monthly repayments.”
The long-term approach to small business finance options
“At SPF, we’re playing the long game and are committed to long-term partnerships,” says Tom. “We’re not just here to put a loan into a company and say goodbye. We aim to help companies expand and grow as they work alongside us so that eventually they only need us to keep their interest costs low or in exceptional circumstances.
For any businesses considering finance options, Craig’s advice is clear. “The sooner we can have those conversations, the easier our job is and often the better priced options will be available.”
By exploring the full spectrum of business financing options beyond credit cards and basic loans, UK SMEs can access the capital they need to weather economic uncertainties and position themselves for sustained growth. Contact our expert team if you would like to discuss the options for your business.
We are a credit broker, not a lender; any credit will be subject to an assessment of the customer’s financial circumstances or status.
