Which Business Finance Product Is Right for You?

Before you talk to any lender or broker, answer these five questions about your funding need. The answers collapse the product choice from eight options down to one or two.

A business term loan is the simplest and usually cheapest form of structured business debt. The lender advances a lump sum that you repay in equal monthly instalments at a stated APR over 1-7 years. It can be unsecured (PG backed) or secured (property, debenture, asset charge).

Term loans suit growth investment, defined-purpose capital expenditure that doesn't suit asset finance, acquisitions where security is available, and refinancing of multiple smaller short-term facilities. They are well-suited to predictable, profit-generating uses where the monthly repayment can be planned for at the outset.

What they are bad for: short-term working capital pressure (use an RCF), single-asset purchases (use asset finance), or any situation where you might need to repay early without penalty.

An RCF is a pre-approved line of credit you can draw down, repay and redraw repeatedly across the agreement, typically 12-36 months. You pay interest only on the drawn balance plus a small non-utilisation fee on the undrawn portion. It is the modern replacement for the traditional bank overdraft.

RCFs are designed for working capital: smoothing payroll, paying suppliers early, covering VAT and corporation tax timing, funding stock builds, taking on contracts with extended payment terms, or simply holding dry powder for opportunistic moves.

What RCFs are bad for: anything where you need the full headline limit drawn for the entire term. If you are going to be permanently 100% drawn, a term loan is cheaper.

Asset finance funds the purchase of identifiable equipment, vehicles or plant by spreading the cost over the useful life of the asset. The asset itself secures the loan, which collapses the risk and the price. It comes in four flavours: hire purchase (own at end), finance lease (off balance sheet), operating lease (return at end) and sale-and-leaseback (release capital from owned kit).

Asset finance is almost always cheaper than the equivalent unsecured business loan for a single asset purchase. Where you would pay 10% on an unsecured loan, you might pay 6-7% on the equivalent asset finance because the lender has hard collateral.

What asset finance is bad for: intangible assets, multiple small items below £5k each, soft assets with poor secondary market, or working capital generally.

Invoice finance advances 80-90% of the value of unpaid customer invoices, typically within 24 hours of the invoice being raised. The remainder (less a small fee) is released when the customer pays. It comes in two main forms: factoring (disclosed - the funder manages credit control) and invoice discounting (confidential - you continue to manage the ledger).

Invoice finance suits businesses with predictable B2B trade-credit sales cycles where customers genuinely pay on 30-90 day terms and the business needs cash faster than that. Manufacturing, wholesale, recruitment, construction, professional services, logistics and printing are all classic invoice finance users.

What invoice finance is bad for: consumer-facing businesses, cash trading, project work with milestone billing, or one-off contract wins. It is also expensive relative to a term loan if you are using it as permanent working capital rather than a genuine cash flow accelerator.

An MCA is a sale of future card receipts. The funder advances a lump sum and recoups a fixed percentage of each card transaction until a pre-agreed multiple of the advance is repaid. There is no fixed monthly payment and no stated APR, but the implied cost typically equates to 30-60% APR on an annualised basis.

MCAs suit retail, hospitality and consumer-facing businesses with strong, predictable card turnover that need short-term cash and cannot wait for a term loan. They are also useful for businesses that have already exhausted other options and need bridging working capital while a longer-term facility is arranged.

What MCAs are bad for: anything that can wait 5-10 working days for a cheaper alternative. The implied cost is significantly higher than a term loan or RCF, and the daily repayment can suffocate cash flow if turnover dips.

A commercial bridging loan is short-term funding (3-18 months) secured against property the business or directors own. The cash itself goes into the trading entity for whatever the commercial purpose is - acquisition, VAT, tax, refinance, opportunity, working capital. Interest is usually rolled or retained so there is no monthly service.

Commercial bridging suits time-sensitive deals where speed beats price: acquisitions on tight deadlines, HMRC pressure, contractually-imposed refinance windows, off-market opportunities and any situation where the value created by acting fast outweighs the higher monthly cost.

What bridging is bad for: anything where you have time for a term loan or commercial mortgage. Bridging is more expensive precisely because it is faster and more flexible. Use it deliberately, with an engineered exit, not as a default.

A commercial mortgage is long-term debt secured against UK commercial property, used to purchase the property, refinance existing debt or release equity. Terms run 5-25 years at rates of 5-9% APR depending on the asset, sector and LTV. It is the cheapest form of business borrowing the UK market offers, full stop.

Commercial mortgages suit owner-occupier purchases (rather than renting premises), property investment, refinancing higher-cost short-term debt and equity release from owned property to fund growth or acquisitions.

What commercial mortgages are bad for: anything that needs to complete in under 6 weeks. The valuation, legal and underwriting cycle is slower than a bridge. For speed, bridge first then refinance onto the long-term mortgage.

Map your need against this sequence. The first match is usually the right product. Where two products both fit, the cheaper one wins.

After 20+ years of arranging UK business finance, these are the structural errors we see most often. Each one is avoidable.

If you have a specific commercial problem to solve, send us a one-line brief: amount, purpose, security, term, exit. We come back within hours with which product structure suits, which lenders are genuinely open to it, what indicative pricing looks like and how fast it can complete.

If you are earlier in the conversation and want to think through the right structure before committing to anything, the same one-line brief still works. We will run the comparison and tell you honestly if the answer is one of the products you already had in mind, or something cheaper you had not considered.

Either way, all conversations are confidential and no upfront fees are charged on facilities over £1m.