A guide to business finance


An overdraft is usually arranged as an additional solution to your business bank account. It is often used as a safety net should unforeseen circumstances arise. Interest is generally calculated daily so the majority of costs are directly attributable to usage.


Often a cheap form of lending if used sparingly

Allows flexibility and can be used to mitigate unforeseen financial issues


Can be a cost to you even if you never use it

Can be costly if utilised regularly and other options would be better in the long term (business loan)


Crowdfunding allows businesses to raise capital by using a large number of individuals who contribute small amounts. There are a number of crowdfunding websites that bring two parties together. It is often promoted through social media.

Many projects are reward-based as well as finance. E.g. funders get delivery of a product before it is released to the general public.


Can be a very fast way of raising finance

It can prove a valuable form of networking by creating ‘buzz’ about a product and even get media attention

Great chance to get feedback from members of the public before launch

An alternative to traditional forms of finance


It can be quite time consuming to produce all the information that is required as well as promoting the project

Projects can be high profile, so failure can cause reputational risk with a number of people as opposed to one lender in more traditional forms of lending

If you get the rewards or returns wrong, it can result in giving too many things away

Angel Investment

Angel investment is equity finance where a wealthy investor (usually a high net worth individual) uses their own cash reserves and in return receives a percentage stake within the business. The investor will often provide guidance and help to the business and will make introductions to suppliers, prospects and valuable contracts in the industry. Angel investment is usually between £10,000 and £500,000 and investors often look for a return within 3 to 8 years, but that can vary.


Investors are in charge of their own money and therefore can make decisions quickly.

No need to use other personal assets to secure funding.

Investors are often specialists in your business sector and are able to introduce you to important new contacts.

Often results in mentoring/coaching and accountability to someone who is not involved in your business on a day to day basis.

No need to repay a loan so no long-term debt attached to the business.


Can be risky if you do not find the right investor and the details of the relationship are not resolved before any cash is invested.

You will give up a percentage of your business.

Can often be a time-consuming process due to the number of meetings/discussions/negotiations required.

Business Loan (secured/unsecured)

A standard business loan is the most used and traditional form of lending. The level of funding can vary from £1,000 upwards. This type of lending is available from banks and most other lenders. There are a few variations on this type of lending;

Secured – The most common form of security taken is a property. This could be personal dwelling, buy-to-let properties or commercial premises

Unsecured – No tangible security is required but often the borrower will need to provide a personal guarantee.

Peer-to-Peer finance – Rapidly growing form of finance. The funds are provided by private individuals and a large number of funders will have a small stake in each loan and in return receive a proportion of the ‘profit’ received by the lending facilitator.


Flexible in terms of amount of funding available, duration etc.

Peer-to-peer finance and unsecured lending can be very fast and in your bank account within a few days.

Available to use in a variety of situations and circumstances.

Many funders available and there will be a suitable product for most situations/circumstances.


Can be used in any circumstances and therefore might not be the best finance product for the situation than other more defined forms of lending. E.g. Asset finance for assets, commercial mortgages for property etc.

Commercial Mortgages

Used to buy properties or land for commercial use. It is available for trading businesses or commercial investors. Trading business will use it to buy their existing or new commercial premises as a long-term asset for the business. Commercial Investors purchase commercial property as an investment to either renovate and sell at a profit or to rent out to tenants to receive an ongoing income.


Often cheaper than renting property.

Potential investment for the long-term benefit of a business.

Can get a low APR compared to other forms of lending as the property itself is used as the security.


Often the duration of the loan is over 15 years and therefore a long-term debt is placed on the business.

There can be a number of costs involved with this type of lending (valuations, set up fees etc).

Commercial property values can be volatile in comparison to residential property.

Bridging Finance

Bridging finance is a short-term finance option. Bridging finance loans can be as short as 2 weeks up to 18 months. The purpose is to finance a purchase in the short term before a longer-term solution is put in place. Often used in property for purchases at Auction or when a property needs refurbishing and the purchaser looks to re-sell quickly to make a quick profit.


Finance can be secured quickly, which is especially useful if you need to move quickly to secure a particularly good purchase price.


Often the interest is calculated monthly and therefore if the duration is over 6 months it can be expensive.

Not a long-term solution and often another finance product is required once the bridge term has finished.

Factoring/Invoice Finance

A very common form of finance and it is estimated that it is used by around 50,000 business in the UK. This cashflow solution for Business to Business organisations allows you to receive cash within hours of producing an invoice. There are various forms of this type of finance to suit certain industries. Examples include Recruitment finance, construction finance, transport finance etc. This type of finance is often customised to each business and options include outsourcing credit control.


Excellent for cashflow. Cash that is owed to the business will be paid quickly and this allows the person to invest in other areas, pay other expenses without causing cashflow issues.

Available to businesses of various sizes and at all stages.

Can take away the burden, time and expense of credit control by outsourcing to your finance partner.


Businesses need to pay an agreed ‘fee’ per invoice.

Some lenders can have long contract periods.

Asset Finance

As with many forms of finance, there are variations within this type of finance to suit the circumstances. This type of finance allows a business to raise finance to split the cost of equipment over the course of its useful life span. The business will pay a fixed monthly payment and duration is typical between 12 months and 5 years. The variations include Hire Purchase, Finance lease, operating lease. Assets that can be financed include machinery, vehicles, computer equipment.

It is also possible to refinance existing equipment that has previously been purchased to raise funds to be used in other areas of the business.


Spread the cost of large purchases which can ease cashflow concerns.

Allows cash to be freed up and spent in other areas of the business.

Potentially allows you to access higher standard equipment than you would otherwise able to afford.

Costs are fixed monthly.


It can be more expensive than buying an asset outright.

Some contracts can be difficult to cancel early.

You may have to pay a deposit to set up the agreement.

Merchant Cash Advance

A popular alternative to a standard business loan. It is an effective cash flow tool for businesses who use a card terminal to take payments from customers. Common industries include Retail, Hospitality, Health & Beauty, online stores. It is often available to fairly new businesses with some demonstrable spend through card terminals. This product differs from many types of lending as you pay back an agreed fixed percentage of sales through your merchant services and not a fixed monthly amount. As many industries who use this type of finance have seasonal issues it can be helpful for cashflow.


Can be available to people with bad credit history.

Agreements can be put in place quickly.

The amount owed never increases as there is no interest.

No chance of late fees as repayments are made automatically.

Can help with cashflow as you pay back a percentage of money received.


Often a more expensive form of lending compared to standard business loans.

A short-term solution to cashflow/finance issues.


If you have an accountant, they should be your first stop for business advice. If you don’t have an accountant or they can’t help, BuBul has a wide range of experts available. For more advice on business financing, contact our expert* James on LinkedIn.

*We’ve picked experts we know and trust who are good at what they do. All of them will give you at least an extra 30 minutes free advice if you contact them and would then charge their normal prices. They don’t pay to be on BuBul and don’t give us any money from anything they earn as an expert.