What is business finance?

Business finance is the activity of raising and managing the cash of your company. You may need to raise cash to start a new business or grow an existing one, and your choices include equity finance, where investors give you money in exchange for shares in your business, or debt finance, such as a business loan, bridging loan or commercial mortgage, from a bank or other type of business lender. Browse a wide range business products below or read our guide to business finance to learn more. 

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4 steps to make your business a success

Michelle Monck

Michelle Monck

Consumer Finance Expert

Step 1 – write a business plan

Every business, no matter what its size or age, should create a business plan. Your business plan shows lenders, investors and your employees (if you have these) your vision, strategy, objectives and tactics to grow your business. A business plan will include an executive summary, that needs to be easy to read, and highlights the significant points in your business plan. You will also need to cover:

Your financial position

  • You should include in your business plan both a historical and forecast view of the financial position of your business. If you have them, you should include the last three years of trading and audited accounts and your forecasts for the next three to five years.
  • You should also include your key sales and financial targets, including if you need debt finance or are looking for investors to grow the business. You should show the size of any business loan or commercial mortgage, and the interest rate costs, and you will need to evidence how your business will meet the interest payments and repay the capital borrowed. If you are looking for investors, you should state any form of tax relief they might benefit from and any existing investment you have already attracted. You should also show contingency planning for any potential downsides in your plan, such as sales targets not being met or costs being greater than expected.

Highlight your key people and skills

  • Your people and their skills and experiences add huge value to your business and can increase the confidence of investors and/or lenders that your business will succeed.
  • An overview of your products
  • You will need to include an overview of your products and/or services, those that are already live and those in development. You should include the product and service use cases and their points of differentiation. You can also state which clients are using the products, their price points and levels of margin.

A marketing strategy

  • You need to demonstrate a detailed understanding of your market, its current size, future growth opportunities, and your direct and indirect competitors. You should outline who your target customers are and how your products and services meet their needs. Show how you will develop your brand, and attract new - and retain existing - customers. This should include your marketing budget and the return you expect to generate from this investment.

Step 2 - Manage your cash

Cashflow is the lifeblood of any business. A weekly cash flow shows all the ins and outs of cash across your business. This helps you to understand how much cash your business generates and what is paid out. You also need to understand your working capital to operate the business. This includes reviewing stock levels, so any excess is removed, and prompt issuance of sales invoices and managing payments to minimise late-payers. Any capital expenditure also needs to be reviewed to make sure it is achievable without damaging your cashflow. More businesses are using automated payments to help improve the speed of payments.

Step 3 - Refresh the business plan

Over time things change and it is a sensible idea to revisit and update your business plan. This will allow you to maximise any new opportunities that have arisen and make sure you can adjust your plan if things such as budgets or sales have over or underperformed. If you decide you want to find a business investor, this may not only provide the capital you are looking for, but could also bring additional business contacts and experience to give your business a further boost. 

Step 4 - Focus on great customer service

Whether you are a manufacturer or in the services industry, providing an excellent customer experience is essential to increase the reach of your business through recommendations and referrals, and to increase your repeat revenue from existing clients. It’s important that driving great customer service is part of your business culture; you can do this by making sure your product information is clear and easy to understand, and by training your staff in not only how your product or service works, but also in conflict management and developing empathy. You should also encourage feedback about your products and services from customers; not only can these form great reviews, but they also help you to improve your current offering and develop new product/service ideas.

How can I use finance to grow my business?

There are different finance options based upon the status of your business:

Pre-trading

·         Seed finance

·         Start-up loan

 

Pre-profit

·         Seed finance

·         Angel finance

·         Equity crowdfunding

·         Venture capital

·         Corporate venture capital

·         Start-up loan

 

·         Overdraft

·         Asset based finance

·         Leasing & hire purchase

·         Export or trade finance

·         Growth finance

 

Growing and making a profit

·         Angel finance

·         Equity crowdfunding

·         Private equity

·         IPO or public offering

·         Overdraft

·         Bank loan

 

·         Peer-to-peer

·         Asset based finance

·         Leasing and hire purchase

·         Export of trade finance

·         Growth finance

 

Stressed performance – established business

·         Private equity

·         Overdraft

·         Bank loan

·         Invoice factoring

·         Asset based finance

·         Leasing and hire purchase

·         Export or trade finance

 

Stable and established

·         IPO or public offering

·         Overdraft

·         Bank loan

·         Invoice factoring

·         Asset based finance

·         Leasing and hire purchase

·         Export or trade finance

How does business finance work for my sector?

Business finance for farms and agriculture finance

Farming is a global and highly competitive business, with advancements in technology and consolidation making it tough to compete. A business loan can help you to buy capital items, such as a new piece of technology or new machinery, or to release some day-to-day working capital. It can also help with the purchase of livestock, feed and fertiliser. If you are looking to expand your farming business by acquiring new land or building new farm buildings, then a commercial mortgage or bridging loan may be suitable.

If you have outstanding invoices and late payments and need to improve your cashflow then invoice factoring, while incurring a cost, can provide you funds quickly. 

Business finance for manufacturers

Manufacturing includes a diverse range of industries such as mining, quarrying, all types of engineering from aeronautics to car production, chemical industries, textiles and clothing, energy, waste management and food production. In the UK, the sector employs 2.6m people and accounts for 44% of total UK exports.

Starting and running a manufacturing business involves significant capital investments, such as machinery and premises, and operational costs from insurances, to raw materials, employees and utility costs. Sometimes you might need a short-term loan to improve cash flow, or a longer-term mortgage for property. In addition, manufacturing is a sector with one of the largest amounts spent on research and development. You may need finance to make sure you can continue to invest in new technologies and innovate to keep up with the competition.

Business finance for hotels

The hospitality industry is the UK’s third biggest employer, providing work for 3.2m people directly and a further 2.8m people indirectly. Those wanting to acquire a hotel, or looking to refurbish or expand their hotel, will need to consider a commercial mortgage or bridging loan.

If you are new to the hospitality industry you can improve your chances of securing a commercial mortgage by selecting a hotel that is performing well, and by showing your experience in running and managing other types of businesses. You should have at least the last two years’ trading history of the hotel to show the hotel’s turnover, costs and profit levels. If performance has been poor, then you need to show the changes you intend to make and forecast the improvement this will have to profitability. These changes could be to your aesthetics, through a refurbishment, or your marketing plan.

Business finance for retail

The retail industry has had a difficult time recently, particularly the traditional high street, which has struggled against the convenience and price competitiveness of online shopping. The sector employs 2.9m people and there are just under 300,000 retail units in the UK.

Creating an exciting retail experience is essential to attracting customers and increasing your share of their spending. A business loan or commercial mortgage can help you achieve this, either through renovating your physical stores or investing in new technologies to give you an e-commerce site or an interactive shopping experience. You can also borrow to invest in your security, such as CCTV cameras, alarms and protection of your website and customer’s data.

Business finance for restaurants

In the UK, there are 988,000 people employed in the restaurant sector across 186,000 restaurants. The sector has had a tough time, with some well-known brands and chains having to close or call in the administrators during 2019. However, the increasing demand for plant-based food as consumers look for healthy alternatives, the desire for more unusual and individual dining experiences and a keenness to reduce food miles through local produce provides imaginative restaurant owners with options to open new and expand existing restaurants.

You can use a business loan or commercial mortgage to purchase or refurbish your restaurant.

Business finance for sole traders

If you are a sole trader, then any application for credit will include not only the financial position of your business, but also your own personal financial health. Like loans for other types of businesses, you can apply for a secured or unsecured business loan.

Check your credit score

Before you apply for business finance it's important to check your credit score.

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