Small businesses use finance to manage working capital, purchase equipment, fund expansion or bridge the time between completing work and receiving payment. The right product should match the purpose and the period over which the investment produces cash.
A short-term cash requirement does not always justify a long loan, while financing a major asset with a very short facility can create unnecessary repayment pressure.
Common small business finance options
| Option | How it works | May suit |
|---|---|---|
| Term loan | A fixed amount repaid over an agreed period | Expansion, refurbishment or planned investment |
| Revolving credit | Borrow, repay and reuse up to a limit | Seasonal or short-term working capital |
| Asset finance | Funding linked to vehicles or equipment | Businesses purchasing productive assets |
| Invoice finance | Funding based on eligible unpaid invoices | Companies with business customers on credit terms |
| Merchant cash advance | Advance repaid from future card sales | Businesses with consistent card turnover |
Define the borrowing requirement
Prepare a simple use-of-funds statement showing the amount required and exactly how it will be spent. Add a cash-flow forecast that includes the proposed repayments and a downside scenario.
If the company needs finance repeatedly to cover the same gap, the underlying pricing, payment terms or cost base may also need attention.
Compare interest and fees
Different providers describe pricing in different ways. Convert offers into a comparable total cost over the expected borrowing period.
- Interest rate and whether it is fixed or variable.
- Arrangement, documentation and broker fees.
- Unused facility or renewal fees.
- Early repayment charges.
- Legal, valuation or security registration costs.
Security and personal guarantees
A lender may take security over property, equipment, invoices or wider company assets. Directors may also be asked for personal guarantees.
Understand what the lender can enforce after missed payments and whether the guarantee is limited or unlimited. Independent legal advice may be appropriate before signing.
Documents to prepare
Lenders may request recent accounts, bank statements, management information, tax records, customer concentration, aged receivables and details of current borrowing.
- Check that company and owner details are consistent.
- Explain unusual transactions or temporary losses.
- Identify existing security and lender restrictions.
- Provide realistic forecasts supported by assumptions.
- Keep contracts or purchase orders supporting the request.
Invoice finance considerations
Invoice finance can improve access to cash, but eligibility may depend on customer quality, invoice disputes and concentration. Compare the advance rate, service fee, discount charge, recourse terms and minimum contract period.
Confirm whether customers will be notified and who remains responsible for collection.
Questions to ask a finance provider
Ask how quickly funds can be drawn, what financial covenants apply, when the lender can change the limit and which events count as default. Review reporting requirements and all renewal conditions.
Comparison rule: use the amount and period the business genuinely expects to borrow. A headline maximum facility may not reflect the actual cost.
Make the final decision
Compare suitable offers, assess the effect on cash flow and retain a margin for slower sales or unexpected costs. Borrowing should support a credible business objective rather than postpone an unresolved structural problem.
Finance products and regulation differ by country. This guide is general information and does not replace regulated financial, accounting, tax or legal advice.