Finance Products

Getting the right type of finance at the right time can be the difference between a business that merely survives and one that grows with confidence. But the range of credit products on offer can feel like alphabet soup — loans, overdrafts, invoice finance, asset finance, and more. This guide breaks down the main options, how each one works, what lenders typically look for, and where they tend to fit into a company’s journey.

1. Business Term Loans

Also known as: business loans, commercial loans, growth loans, working capital loans

How it works: A lender provides a lump sum upfront, which is repaid over an agreed term (usually 1–10 years) with interest, either at a fixed or variable rate.

Benefits:

Predictable repayments make budgeting straightforward
Can be secured or unsecured depending on loan size
Funds can be used flexibly — equipment, premises, working capital, or expansion

How the interest rate is typically set: Pricing is largely risk-based. Lenders start from a benchmark (often the Bank of England base rate or their own cost of funds) and add a margin reflecting the individual application. Key factors include:

Business age and trading history — newer businesses are treated as higher risk and priced accordingly
Affordability — assessed through cash flow, profit margins, and existing debt commitments relative to turnover
Security offered — secured loans (backed by property, assets, or a debenture) typically attract lower rates than unsecured loans, since the lender’s risk is reduced
Credit history — both business credit file and, for smaller companies, the directors’ personal credit scores
Loan term and amount — longer terms or larger amounts can carry a rate premium to reflect extended exposure

Typical minimum requirements:

At least 6–24 months of trading history (though some fintech lenders offer start-up loans)
Minimum annual turnover thresholds (often £50,000+ for unsecured options)
A registered UK company with accessible accounts or bank statements
Directors may need to provide a personal guarantee

Where it fits: Common during growth phases — funding new premises, hiring, or bulk stock purchases once a business has a proven trading track record.

2. Business Credit Cards

Also known as: corporate cards, company charge cards, commercial credit cards

How it works: A revolving credit line tied to a card, used for day-to-day purchases, with a monthly repayment cycle and interest charged on any balance carried over.

Benefits:

Useful for managing short-term cash flow gaps
Often comes with cashback, rewards, or expense-tracking tools
Builds a business credit history when used responsibly

How the interest rate is typically set: Business credit cards usually carry a representative APR, but the actual rate offered depends on:

Director/personal credit score — for smaller or newer businesses, this often carries more weight than the company’s own file
Business age — established companies are more likely to be offered promotional or lower standard rates
Affordability signals — income and existing credit exposure assessed at application
Card tier — premium cards with rewards often carry higher APRs to offset the cost of benefits, even where risk is otherwise low

Typical minimum requirements:

Company registered with Companies House
Director credit check (personal guarantee common for smaller businesses)
Some providers require a minimum trading period of 3–12 months

Where it fits: Useful from the very early stages, particularly for managing operational spend and separating business from personal finances.

3. Business Overdrafts

Also known as: current account overdrafts, arranged overdrafts

How it works: An extension on a business current account allowing the balance to go below zero up to an agreed limit, with interest charged only on the amount used.

Benefits:

Flexible, short-term buffer for cash flow fluctuations
Interest only applies to funds actually drawn
Quick to arrange if already banking with the provider

How the interest rate is typically set: Overdraft pricing tends to reflect the ongoing relationship risk rather than a one-off assessment:

Banking history with the provider — longer, well-conducted relationships often unlock better rates
Affordability and cash flow volatility — frequent or heavy overdraft use signals higher risk and can push rates up
Security — unsecured overdrafts (the norm for smaller facilities) carry higher rates than those backed by a guarantee or charge
Facility size — larger arranged limits are sometimes priced more favourably per pound than small, ad hoc ones

Typical minimum requirements:

Existing business bank account, often with the same institution
Consistent incoming cash flow demonstrated via statements
Some trading history, though start-ups can occasionally access small facilities

Where it fits: A staple at almost every stage, but especially useful early on to smooth out seasonal or irregular income.

4. Lines of Credit (Revolving Credit Facilities)

Also known as: revolving credit facilities, business credit lines, working capital facilities

How it works: Similar to an overdraft but usually provided independently of a bank account. A business is approved for a maximum limit and can draw down and repay repeatedly, paying interest only on the outstanding balance.

Benefits:

Flexible access to funds without reapplying each time
Helps manage irregular cash flow or seasonal demand
Often faster to access than a fresh loan application

How the interest rate is typically set: Similar risk logic to overdrafts and term loans applies, with added weight on utilisation patterns:

Affordability — based on turnover, margins, and how comfortably repayments fit around normal cash flow
Security — a facility backed by a debenture or asset charge is usually cheaper than an unsecured one
Age and track record of the business — longer-trading, financially stable businesses are offered lower margins above the base rate
Draw-down behaviour — some lenders adjust pricing or fees based on how much of the facility is typically used

Typical minimum requirements:

Usually 6–12 months of trading history
Minimum turnover thresholds set by the lender
Good indication of consistent revenue

Where it fits: Common in the growth stage, when a business needs ongoing flexible working capital rather than a one-off injection.

5. Invoice Finance (Factoring & Discounting)

Also known as: debtor finance, receivables finance, accounts receivable financing, cash flow finance

How it works: A lender advances a percentage (typically 70–90%) of the value of unpaid invoices, with the remainder (minus fees) released once the customer pays. Factoring includes credit control support; discounting leaves collection with the business.

Benefits:

Unlocks cash tied up in outstanding invoices
Improves cash flow without waiting 30, 60, or 90 days for payment
Scales naturally with sales — more invoices, more available funding

How the interest rate is typically set: Pricing here is usually a combination of a discount rate (charged on funds advanced) and a service fee, influenced by:

The credit quality of the business’s customers (debtors) — the risk being priced is often more about who owes the money than the business itself
Security — the invoices themselves act as security, which is why rates can be competitive even for younger businesses
Concentration risk — reliance on a small number of large customers can push pricing up
Facility type — factoring (with credit control included) typically costs more than discounting, reflecting the added service

Typical minimum requirements:

Business must invoice other businesses (B2B) on credit terms
Minimum annual turnover often around £50,000–£100,000
A track record of customers paying invoices reliably

Where it fits: Especially valuable during growth or scale-up phases when sales are rising but payment terms are creating cash flow strain.

6. Asset Finance (Hire Purchase & Leasing)

Also known as: equipment finance, plant and machinery finance, HP (hire purchase), finance lease, operating lease

How it works: A lender funds the purchase of equipment, vehicles, or machinery. With hire purchase, ownership transfers at the end of the term; with leasing, the business pays to use the asset without ever owning it.

Benefits:

Spreads the cost of expensive equipment over time
Preserves working capital for other priorities
Some agreements include maintenance or upgrade options

How the interest rate is typically set: Because the asset itself provides built-in security, pricing is often more favourable than unsecured products, but still varies by:

Asset type and residual value — equipment that holds its value well (e.g. vehicles) is cheaper to finance than assets that depreciate quickly or are hard to resell
Deposit size — a larger deposit reduces the lender’s exposure and can lower the rate
Business age and affordability — still assessed, particularly for hire purchase where ownership eventually transfers
Term length — longer agreements can carry a rate premium

Typical minimum requirements:

The asset itself often serves as security, easing approval
Some trading history preferred, though start-ups can qualify with strong deposits
Credit checks on the business and sometimes directors

Where it fits: Common at any stage a business needs to invest in equipment or vehicles — from a start-up buying its first van to an established company upgrading machinery.

7. Merchant Cash Advances

Also known as: MCAs, business cash advances, revenue-based finance

How it works: A lender provides a lump sum in exchange for a percentage of future card sales, repaid automatically as a share of daily or weekly takings.

Benefits:

Repayments flex with revenue — quieter periods mean smaller repayments
Fast to arrange, often with minimal paperwork
No fixed monthly repayment date to manage

How the interest rate is typically set: MCAs aren’t usually priced with a traditional APR — instead a “factor rate” is applied to the advance, influenced by:

Card sales volume and consistency — steadier, higher-volume takings generally secure a better factor rate
Affordability — the repayment percentage is set so it’s manageable against typical daily/weekly card revenue
Trading history — longer, verifiable card sales history reduces perceived risk
Sector risk — some industries are viewed as higher risk due to volatility in footfall or spending

Typical minimum requirements:

Consistent card sales history, usually via a card payment provider
Minimum monthly card turnover thresholds
Typically requires 4–12 months of trading

Where it fits: Popular with retail and hospitality businesses at various stages needing quick, short-term funding tied to sales performance.

8. Trade Credit (Supplier Credit)

Also known as: supplier credit, credit terms, open account trading

How it works: Suppliers allow payment for goods or services at a later date (commonly 30–90 days) rather than at the point of purchase.

Benefits:

No interest if paid within agreed terms
Helps manage cash flow without formal borrowing
Strengthens supplier relationships and can improve future terms

How the interest rate is typically set: Trade credit is usually interest-free within agreed terms, but late payment charges or extended terms are priced based on:

Payment history with that supplier — reliable payers are often extended longer or larger credit terms over time
Business age and credit score — checked before terms are first granted, and periodically reviewed
Security — rarely secured, so suppliers manage risk through credit limits rather than rate adjustments
Industry norms — standard terms and any late payment interest are often shaped by sector conventions

Typical minimum requirements:

A credit check by the supplier
Sometimes a minimum trading period before terms are extended
References from other suppliers can help in early stages

Where it fits: Relevant from day one and throughout a company’s life, particularly useful for managing stock and supply costs.

9. Refinancing (Debt Refinance & Consolidation)

Also known as: business refinance, debt consolidation, remortgaging (for secured facilities), replacing existing finance

How it works: Refinancing means replacing an existing finance agreement — a loan, asset finance deal, invoice finance facility, or commercial mortgage — with a new one, usually from a different lender, to secure better terms, release additional funds, or consolidate several debts into a single facility.

Benefits:

Can lower monthly repayments by securing a better rate or extending the term
Consolidates multiple debts into one facility, simplifying admin and cash flow planning
May release additional capital (a “further advance”) against an asset that has grown in value or been partly paid down
An opportunity to switch between fixed and variable rates as circumstances or market conditions change

How the interest rate is typically set: Refinancing is, in effect, a fresh lending assessment, so pricing is shaped by a similar mix of factors to a first application, with a few refinance-specific additions:

Equity or loan-to-value position — how much of the original facility has been repaid, or how the underlying asset’s value has moved, affects both how much can be released and the rate offered
Updated trading history and accounts — a business refinancing two or three years into trading typically accesses better terms than at first application
Current market rates — since refinancing is often driven by rate movements, timing relative to Bank of England base rate changes matters
Early repayment or exit charges on the existing facility — some fixed-term loans and hire purchase agreements carry settlement penalties that need weighing against the savings from refinancing
Credit conduct on the existing facility — a strong repayment record strengthens the case, whether refinancing with the same lender or moving to a new one

Typical minimum requirements:

An existing finance agreement to refinance — loan, asset finance, invoice finance facility, or commercial mortgage
Updated financial information (recent accounts or bank statements), since lenders reassess affordability rather than carrying over the original approval
A settlement figure from the existing lender, particularly for secured refinancing, to establish the outstanding balance and any exit fees
For limited companies this typically means updated company accounts; for sole traders, self-assessment returns and bank statements usually stand in

Where it fits: Worth reviewing periodically throughout a business’s life, not only when a business is struggling — refinancing is as often about proactively improving terms as it is about consolidating debt. For a limited company, this might mean rolling several loans or asset finance agreements into one facility secured against the company’s own assets. Sole traders refinancing works much the same way in principle, but often draws on personal-and-business assets together — remortgaging a home partly used for the business, or refinancing a van or equipment on HP — since a sole trader doesn’t have the legal separation between personal and business assets that a limited company has.

10. Sale and Hire Purchase Back / Sale and Leaseback

Also known as: sale and HP back, sale and leaseback, asset refinance, capital release finance

How it works: A business sells an asset it already owns outright — equipment, machinery, vehicles, or commercial property — to a finance company for a lump sum, then immediately hires or leases that same asset back for continued use. Under a sale and HP back agreement, ownership passes back to the business once the term completes, just like standard hire purchase. Under a sale and leaseback, the business keeps using the asset without ever reacquiring ownership. Either way, there’s no interruption to using the asset — only a change in who owns it and a lump sum released in the meantime.

Benefits:

Releases capital tied up in assets the business already owns, without giving up their use
Can be quicker to arrange than a fresh loan, since the asset itself is the security
Funds released aren’t restricted to buying a new asset — usable for any business purpose (working capital, tax bills, growth)
Sale and HP back rebuilds ownership through the agreement; sale and leaseback can keep ongoing costs off the balance sheet as an operating expense, depending on accounting treatment

How the interest rate is typically set:

Asset type and residual value — equipment that holds its value well is cheaper to finance than assets that depreciate quickly or are hard to resell, mirroring standard asset finance
Valuation of the asset at sale — an independent or lender-arranged valuation sets the sum released; a conservative valuation reduces the lender’s risk and can improve pricing
Business affordability — repayments are still assessed against cash flow, since this remains a lending decision underneath the sale-and-hire-back structure
Age and condition of the asset — older or heavily used assets attract higher rates or shorter terms, reflecting reduced residual security
HP back vs leaseback — sale and HP back is priced similarly to standard hire purchase; leaseback terms vary more by provider, since ownership never transfers

Typical minimum requirements:

The asset must already be owned outright by the business, or have enough equity in it — unencumbered by existing finance, or with only a small balance left to settle first
An acceptable, verifiable asset type — vehicles, plant, and machinery are the most readily accepted, since resale/recovery value matters to the lender; commercial property arrangements are also available but more involved
Some trading history and standard credit checks, similar to conventional asset finance
A valuation of the asset (independent or lender-arranged) to establish the sum that can be released

Where it fits: A useful option when a business has capital tied up in owned equipment or vehicles but needs cash for another purpose, rather than for that specific asset. Limited companies commonly use it to release capital against machinery or fleet vehicles already sitting on the balance sheet. Sole traders can use the same route for business assets they own outright — a van or a piece of equipment — though where an asset serves both personal and business use, only the business-use element is typically considered, and full ownership needs to be clearly demonstrated.

11. Government-Backed Loan Schemes (Growth Guarantee Scheme)

Also known as: GGS, the successor to the Recovery Loan Scheme (RLS)

How it works: The Growth Guarantee Scheme isn’t a loan product in its own right — it’s a government guarantee sitting behind standard finance products (term loans, asset finance, overdrafts, invoice finance, and asset-based lending) offered by accredited lenders. The government guarantees 70% of the outstanding balance to the lender, which can make a lender more willing to approve a facility it might otherwise decline. The borrower remains fully liable for the whole debt — the guarantee protects the lender, not the business.

Benefits:

Improves access to finance for businesses that don’t quite meet a lender’s standard criteria
Covers several finance types — term loans, overdrafts, asset finance, invoice finance and asset-based lending — under one scheme
Open to businesses across most sectors, including those newer to trading
No direct cost to the borrower for the guarantee itself — the underlying facility is priced by the lender as normal

How the interest rate is typically set: The guarantee doesn’t set or subsidise the price — lenders still price the underlying facility using their normal risk-based approach (see “How Interest Rates Are Set” below). What changes is the lender’s risk exposure, which can improve approval odds or terms for borrowers who’d otherwise be marginal.

Typical minimum requirements:

Annual group turnover of no more than £45m
Trading activity carried out in the UK, with more than 50% of income from UK operations
Lender assessment that the business is viable
Not currently in financial difficulty or insolvency proceedings

Where it fits: Worth raising directly with an accredited lender when a business is being offered marginal terms, declined outright, or asked for security it can’t provide — the guarantee can sometimes tip a lender’s decision. Facility sizes generally range from £1,000 up to £2m per business group (lower caps apply in Northern Ireland), with terms of up to six years for loans and asset finance (up to ten years for some facilities) and up to three years for overdrafts, invoice finance and asset-based lending. A current list of accredited lenders is maintained by the British Business Bank.

Where These Products Typically Fit in a Business Lifecycle

Start-up stage: Business credit cards, small overdrafts, trade credit, and asset finance with a deposit are the most accessible, since lenders have limited trading history to assess.
Early growth: Lines of credit and invoice finance become more relevant as sales grow but cash flow gaps appear.
Scaling up: Term loans and larger invoice finance facilities support bigger investments — new premises, teams, or equipment.
Established/mature businesses: Access to the widest range of products, often at more competitive rates, thanks to longer trading history, stronger accounts, and established banking relationships.

The Common Thread: What Lenders Generally Want to See

While requirements vary by lender and product, most will assess some combination of:

Trading history — how long the business has been operating
Turnover and cash flow — evidence of consistent income via bank statements or accounts
Credit history — both the business’s and often the directors’ personal credit
Registration status — an active Companies House registration (for limited companies)
Security or guarantees — assets, invoices, or personal guarantees to reduce lender risk

How Interest Rates Are Set: The Common Factors

Regardless of the product, most lenders build their pricing from a base rate (their cost of funds, or a benchmark like the Bank of England base rate) plus a risk margin. That margin is generally shaped by:

Business age and trading history — newer businesses represent an unknown quantity, so are usually priced higher until a track record is established
Affordability — how comfortably the business can meet repayments based on turnover, profit margins, and existing debt
Security — secured lending (backed by property, assets, invoices, or a debenture) is priced lower than unsecured lending, since the lender has recourse if things go wrong
Credit history — both the business’s credit file and, particularly for smaller companies, the personal credit history of directors
Sector and customer risk — some industries or customer bases are viewed as higher risk due to volatility or payment reliability
Facility type and flexibility — products with more flexibility for the borrower (like revolving credit or MCAs) often carry a pricing premium compared with fixed, scheduled repayment products

Understanding which of these factors a lender weighs most heavily can help a business position itself for better terms — for example, offering security, building up trading history, or improving director credit scores before applying.

Final Thoughts

There’s no single “best” finance product — the right choice depends on what the funding is for, how quickly it’s needed, and where the business sits in its journey. Matching the product to the purpose, rather than reaching for the first offer available, tends to produce the healthiest long-term outcome.

This article is provided for general information purposes and does not constitute financial advice. Business owners should seek guidance from a qualified financial adviser or accountant before committing to any credit product.