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Your Commercial Borrowing Options Explained

In the world of commerce, even the most careful strategists can find themselves confronted with financial difficulties. Sometimes, this is down to a cash flow problem; at other times, something unforeseen goes drastically wrong. Fortunately, thanks to borrowing options, these problems don’t have to spell the end of your business.

However, knowing where to turn can prove problematic. There are so many options to consider, and few people are aware of the many ins and outs of them. It can be terribly overwhelming trying to make a decision without all of the facts you need at your disposal. To help you out, here’s a rundown of our top three business borrowing options: the ins, the outs and everything in-between.

Business Overdrafts

One of the best borrowing options available to commercial enterprises is a business overdraft. Available from banks and building societies, they can provide your venture with an average of between £5,000 and £50,000, depending on your business’ credit record, size, and value. They tend to carry very low interest rates compared to most borrowing options, which makes them an extremely attractive proposition. The downside, however, is that you must pass stringent credit checks, and not every company will find themselves eligible.

Invoice Financing

Another attractive proposition for businesses is invoice financing, a concept that works a little differently to traditional borrowing methods. Capital is lent against your outstanding invoices, meaning that you’re essentially dipping into your own funds, albeit prematurely. As a result, invoice financing is very low risk, and carries little chance of leading you into debt. Funds are usually available almost immediately, and some providers will even take over the management of your invoice ledger and responsibility for collecting outstanding debts. Offering the chance to lighten your load at the same time as lining your pockets, this is an extremely popular solution to cash flow problems.

Business Loans

Business loans come in one of two forms: secured and unsecured. Each has its own appeal for those in need of capital.

Secured business loans tend to provide better interest rates than their counterpart. The amounts they offer are flexible, and beneficial terms can usually be negotiated. The downside to this is the leverage they require: usually your home or another valuable asset. Where borrowers find themselves unable to meet the repayment terms, they can stand to lose an awful lot.

Unsecured loans, on the other hand, have less severe consequences should you renege on your side of the bargain. This boon is not without cost: they tend to have higher interest rates than their secured counterparts and less favourable terms. In addition, credit checks tend to be more stringent, and the amount that you’re able to borrow will also be far lower.

If you need to secure funding for your business, which option will you choose?