Types of bank finance for businesses
Sources of short- and long-term bank finance for businesses, including overdrafts, bridging finance and mortgages.
There are several types of bank finance available to your business, with different packages available to suit your needs as your business requirements change. The type of finance that would best suit your business may be based on the purpose of the finance, how quickly you need finance, and how quickly you could repay it.
Short-term finance
Overdrafts are used in conjunction with business bank accounts and are a flexible source of working capital for short-term needs.
Bridging finance is provided by the bank to businesses to maintain cashflow while awaiting funds from grant cheques, drawdown of commercial mortgages or loan agreements, or other confirmed sources of future income.
Working capital funding
Invoice finance offers ways to access working capital by unlocking the value of invoices, although interest rates and charges apply on the cash advanced. Invoice discounting allows you to draw on funding secured against approved invoices, while in factoring you can sell invoices to your financier. If your buyer introduces a supplier finance scheme (also known as supply chain finance or reverse factoring), this will provide the same benefits at a potentially much lower cost.
See factoring and invoice discounting.
Medium-term finance
Term loans have a fixed or variable interest rate and mature over a one- to seven-year period. They are typically used to buy fixed assets such as property or machinery or other purchases of a capital nature.
Asset finance and leasing options allow businesses to spread the ownership associated with buying assets. When you buy assets through leasing finance, the leasing bank buys the equipment for you to use, in exchange for regular payments. Leasing or hire purchase can help you maintain cashflow and allow greater flexibility in upgrading equipment.
For more information, see decide whether to lease or buy assets.
Long-term finance
Commercial mortgages are provided by banks to finance the purchase of business premises. Types of mortgage available include repayment, commercial endowment or pension. The mortgage will usually be repayable over a 15-year period.
You can get advice on the best providers of commercial mortgages from your bank's business adviser or a commercial mortgage broker. For more information, see commercial mortgages and lenders.
Fixed asset loans are loans for assets that cannot easily be turned into cash - eg property, plant or machinery. The loans can be fixed for up to ten years. With this type of loan, the asset itself is the collateral and can be repossessed if you do not maintain repayments.
Banks may also provide a range of specialist services to fund expansions, mergers or acquisitions. For more information, see raise long-term funding through debt capital markets.
However, there may be situations when you are unable to obtain finance from a bank. If this is the case, there are other finance options available to you - see non-bank finance.