Business credit – what’s the right option for you?

Whether you’re looking after your cash flow or funding a new project, getting business credit can be essential for your long term success. From business credit cards to asset finance, there’s a wide range of options to choose from. Read on below to understand what they all mean and make the best decision for your business.

Business credit cards

Business credit cards work like a personal credit card. You’ll have a set credit limit and can make purchases up to that amount. You may have an interest free window to pay it off, say 30-60 days, but then you’ll pay interest on any outstanding balance.

All lenders will perform a credit check when you apply, and your credit limit will depend on how creditworthy your business is.

Benefits

• Multiple people can use the same account
• Easy to track and limit employee expenses
• You may also get cashback, loyalty points and other rewards

Downsides

• It can be expensive if you don’t clear the balance each month
• Not suited to big investments or growth projects
• Interest and delayed payments can make managing cash flow tricky

Overdrafts

Overdrafts can be a useful means of accessing business credit, typically for working capital. If you have one set up with your bank, you can take out more money from your account than you have in there. Acting as a short term safety net, you can quickly access extra working capital when you need it.

Benefits

• Quick access to extra working capital

Downsides

• Usually a low credit limit
• Can be harder for small businesses to access

Business line of credit

A business line of credit is a rolling credit facility that you can dip into when needed, and can be used for a wide variety of business needs. Depending on the provider, you may pay interest or fees when you use it, as well as monthly or annual account fees. 

Like overdrafts and credit cards, when you repay the credit is then available to use again. 

At Funding Circle we offer FlexiPay as an interest-free line of credit of up to £250,000. You can use it to pay business bills, purchases, invoices and more, then repay in 3 equal monthly instalments for a flat 3% fee. 

Benefits of FlexiPay

• No interest, annual charge or set up fee
• Flat 3% fee each time you use it
• Pay back each business cost in 3 equal payments

Drawbacks

• No rewards or loyalty points as with credit cards
• Lower limit and shorter terms than a business loan

Business loans

Business loans allow you to borrow a sum of money, and pay it back over time. They often come with higher available limits, and you can fund both large and small projects, working capital, tax expenses and other day-to-day running costs. 

Our Funding Circle business loans are available from £10,000 to £500,000 on terms from 6 months to 6 years, with fixed rates starting from 7.9% per year. 

Benefits of a Funding Circle loan

• Higher limits to fund projects both large and small
• Fast applications – apply in 10 minutes and get a decision in as little as 1 hour
• Fixed rates up to 6 years, no early settlement fees
• Apply as a limited company with no impact on credit score

Downsides

• Longer term financial commitment
• Less suitable for tracking expenses
• Personal guarantee may be required

Invoice financing

Invoice financing allows you to access the money tied up in your unpaid invoices. You may have completed a job today, but if your invoice won’t be paid for 90 days, it can leave a hole in your cash flow. With invoice financing, a lender will pay you the majority of the invoice up front, then recoup the costs when the invoice is paid and take their fee.

Benefits

• Get paid faster for completed work
• No compound interest – pay one fee per invoice
• Simple way to smooth over cash flow

Downsides

• Only suitable for improved cash flow
• Depends on unpaid invoices
• Not helpful for large projects or growth

Merchant cash advance

A useful line of business credit if you have a lot of customers paying by card, a merchant cash advance allows you to borrow based on your card sales. You’ll typically get a percentage of your average monthly card revenues. Repayments are then taken directly from your future card sales, making repayments very simple to manage. For businesses such as pubs, cafes, restaurants and shops, it can be a frictionless way to gain extra working capital.

Benefits

• Simple repayments
• Based on monthly sales rather than credit rating
• Boost cash flow

Downsides

• Only suitable for certain types of business
• Won’t help with needs other than working capital

Asset finance

Asset finance is simply a loan where you use an asset as a security. It’s often used to buy new equipment, vehicles or machinery, but can also be used to release cash from assets you already own.

Say you want a new van but don’t have enough capital. An asset finance loan would give you the cash up front, then you repay the lender in monthly instalments. Alternatively, say you needed to free up some capital and already had some assets such as property or equipment. You could borrow up to the asset’s value and repay in instalments, and if you couldn’t repay, the lender would take the asset to recover its losses.

We work with a number of lending partners to offer asset finance up to £5 million on terms from 1 to 7 years. These are offered at competitive rates and you could get a same or next day decision on your application. 

Benefits

• Assets could be almost anything
• Help spread the cost of vital new equipment
• Unlock cash in valuable assets you already have

Downsides

• Can only borrow up to the value of the assets
• Valuations can take time if using existing assets

12/12/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.

If you’re looking for extra funds for your business, you could borrow anything from £10,000 to £500,000 through Funding Circle. Check your eligibility in 30 seconds at fundingcircle.com/businesses.