Finance Options For SMEs

Last post: Feb 1, 2016

For SMEs in the UK, there are several sources of finance and lending products available. So let’s have a look at some of the funding options for small and medium sized enterprises.

For SMEs in the UK, there are several sources of finance and lending products available. So let's have a look at some of the funding options for small and medium sized enterprises.


Particularly in the early stages of running a business, there is often a funding requirement to assist with cash flow. For instance, your business may have had to purchase and pay for stock to complete an order but then have to wait a considerable period of time before being paid. To avoid putting pressure on the business current account an overdraft facility could be negotiated with the bank/building society for use in case of need.

The bank will be looking for the borrowing to be maintained within the overdraft limit and, ideally, for the account to fluctuate into credit. The overdraft facility is reviewable periodically and the interest rate is variable. An arrangement fee is payable and security may be required involving further fees.

Business Loan

A business loan can be used for a variety of purposes such as to pay for refurbishments to premises or for an extensive marketing campaign. The borrowing is usually repayable on a monthly basis over between 1 to 10 years. The interest rate could be fixed or variable. Such loans are provided by banks, building societies and specialist lenders. An arrangement fee is payable and, if security is required, other fees may be payable.

Peer-to-Peer Lending

Your business makes a request for a loan on an online peer-to-peer lending platform that charges an administration fee with a view to individuals and other businesses collectively bidding in an auction to lend your business the money you require at an attractive rate of interest. The loan is then normally repayable on a monthly basis over an agreed term. Security may be required.

Factoring/Invoice Discounting

Both these schemes use a third party company such as a bank to make available to your business a % of the funds that are tied up in unpaid invoices that you have issued to your customers. In respect of factoring, the third party company chases your customers to pay their invoices but, in the case of invoice discounting, you are responsible for doing that. Charges are payable based upon a % of both the amount outstanding and the annual turnover of your business.

Hire Purchase 

Your business borrows the funds from a hire purchase company to purchase an asset such as plant and machinery and repay the liability over a number of years on a monthly basis. The goods do not become yours until you have repaid the debt in full so, until such time, you are deemed to be hiring the items.

Business Angels

A wealthy individual such as those seen on the BBC2 TV program Dragons' Den agree to lend your business the funds required in exchange for he or she having an equity stake in your business. You benefit from their expertise and contacts in helping to grow your business.


Grants may be available from the Government, charities, local councils and the European Union for specific projects and for businesses in specific sectors. You do not need to repay a grant.


Apart from using your own savings, the cheapest source of finance is to borrow money from your family as the interest rate, if any, tends to be low and there are unlikely to be any fees. A monthly repayment program can be agreed but there may be some flexibility with this. Security may sometimes be requested.

We hope that you have found the above to be helpful. If you are seeking finance for your SME business, why not get in touch with us here at Choice Loans on 01494 410 125 to discuss your requirements.