FAQs

Frequently Asked Questions on Business Funding Options

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SECURED PENSION FUNDING FAQ'S

Whilst every application will be treated on an individual basis, there is no age limit on applying for and receiving secured pension funding.

Yes, like any other form of business loan funding, you will pay interest on the amount borrowed. However, some of the interest paid will go back into your pension pot.

Any funds that were not borrowed against will remain in your pension pot and continue to be invested as you see fit.

Yes, you can use another director’s pension. Sometimes you might borrow in combination to reduce your individual risk.

In order to make secured pension funding worthwhile, you should have a pension fund of at least £100,000. If you have more funds available, you can borrow against a smaller portion of your pension, reducing the risk associated with borrowing.

You can contact your current pension provider to enquire about the value of your pension, you should also receive a pension statement once a year.

If you have more that one pension, it’s advisable to combine them before application, this can potentially increase their worth and thus the amount of funding you are eligible for.

No, secured pension funding is only possible using the pension of the business owner, director(s) or senior executive(s) – secured pension funding has no impact on your workplace pension scheme.

Yes, secured pension funding can be used for starting, investing in or acquiring a business – we’ll be with you every step of the way to help you select the best option for your needs.

ASSET FINANCE FAQ'S

Even if you have the capital to front the cost of new assets, asset finance can be beneficial as it gives you more money to spend on other areas of the business.

As the name suggests, the funding must be used to purchase assets as agreed with your lender. If you’re looking to fund something else, take a look at some alternative methods of business funding.

Yes, like any other form of business funding, you will pay interest on the amount borrowed. This will mean you pay more for the equipment is worth over the lifetime of the agreement.

In most cases, the business is completely responsible for the ongoing maintenance of the asset. This means that should it break down unexpectedly, the business will need to pay for the repair. As mentioned above, leasing sometimes includes repairs, a guarantee or service plan.

Absolutely, start-ups regularly use asset finance to purchase the tools they need to get their business up and running.

Sure, asset finance can be used by businesses of any size. From sole traders to large public companies.

Generally, when using hire purchase asset funding you will be looking at a deposit of around 10 – 20% of the asset’s value.

CASH FLOW LOANS FAQ'S

Given that start-ups have limited guaranteed cash flow, you are unlikely to be accepted for a cash flow loan as a start-up. However, there are a number of alternative business funding options available that are better suited to start-ups.

We work with a range of the UK’s best lenders to find the funding solution that’s right for you, we’re often able to source better interest rates than you would find going direct.

Yes, in almost every case the lender will run a check on you to ascertain your financial risk to them. If you have a low credit score, you may not be offered a loan or may be offered one with a higher interest rate.

In our experience, paying back a cash flow loan on time can help improve your credit score. On the other hand, if you miss a payment, your credit score could decrease.

If you’re handling the application yourself, it’s not a good idea to apply through lots of different lenders in a short period of time as this may harm your credit score.

One of the most popular credit check services is Equifax.

Dependant on the lender and your current financial situation, you can borrow anything from a couple of thousand to £100,000+.

Some lenders will allow you to repay early and save some money, however, others will charge an early repayment fee that can mean you end up paying more. When using Business Funding Shop, we’ll make sure you understand all the lender’s terms before going ahead.

APR (Annual Percentage Rate) is the amount of interest paid per year on the funds borrowed, as cash flow loans are a short-term solution, the APR is much higher than traditional forms of lending; the figure can also be bloated given that the repayment term is almost always less than 1 year. In any case, you should consult with an expert if you are unsure.

COMMERCIAL MORTGAGES FAQ'S

The deposit for a commercial mortgage will be bigger than you’d pay for a home mortgage in terms of the percentage of the overall value. It’s often the case that commercial mortgages require about 30% of the value of the property. But different commercial mortgages will have different requirements.

There are small arrangement and legal fees that you’ll need to cover when choosing a commercial mortgage for your business. Then there’s the cost of renovating the building and making sure it fits your needs, which buyers will need to consider.

The use of the property can impact what kind of mortgage you’re able to get. Owner-occupied mortgages will be different to buy-to-let options. So this will always be taken into account too.

A credit check is just one of the many tests lenders use to determine your risk to them. When working with Business Funding Shop, we’ll handpick lenders that give you the best chance of being accepted.

We work with a range of lenders who offer commercial mortgages up to almost any value.

Yes, you may be able to raise cash from your existing business or personal assets.

There are over 50 lenders in the UK that specialise in business mortgages, finding the right one for your individual situation can be a challenge. As well as finding a lender that will accept your application, we’ll be there every step of the way to get you the best rates and ensure your application is presented for success.

PEER TO PEER LENDING FAQS'

Any business looking for an extra injection of funds can apply for peer to peer lending. It is particularly appealing to businesses struggling to get a bank loan but you will need at least 2 years of trading records.

The interest rates for peer to peer loans can vary quite widely and may be decided by the platform or by the lenders themselves. The interest rate you are offered is usually calculated by your risk profile as well as how long you require to pay the money back. This means that you should look around carefully to get the right deal for you.

The two are often confused: peer to peer lending is where you borrow from an investor or group of investors through an online platform; crowdfunding takes many different forms:

Equity crowdfunding – Sale of a stake in a business to a number of investors in return for investment. Similar to how stock is bought or sold on the stock exchange.

Rewards-based crowdfunding – Individuals donate to a business or project with the expectation of receiving a non-financial reward in return, such as goods or services, at a later date in exchange of their contribution.

Donation-based crowdfunding – Individuals donate a small amount to meet the larger funding aim of a specific charitable project and will receive no financial or material return.

Profit-sharing / revenue-sharing – Businesses can share future profits or revenues with the crowd in return for funding now.

Debt-securities crowdfunding – Individuals invest in a debt security issued by the company, such as a bond.

Hybrid crowdfunding models offer businesses the opportunity to combine elements of more than one crowdfunding type.

This largely depends on the platform you use. Some loans are arranged free, others come with a fee.

Peer to peer lending is now an established part of the finance industry. It is regulated by the Financial Conduct Authority. This means that there are no grey areas and everyone involved is protected by rights.

TERM LOANS FAQ'S

If you have a good credit and financial history with your business, as well as some collateral to future proof the repayments you will most likely be accepted.

Term loans should ideally be used for the growth of your business. If you require a loan to pay for regular business expenses, then your company is likely having issues with its cash flow and there are deeper issues that need to be solved. A term loan could fix this if used correctly, but it’s best to avoid using a term loan for anything other than business growth.

Term loans can be used to purchase more inventory or equipment, it can be used to upgrade software and hardware solutions, it can be used to purchase the commercial real estate for expansion, it can be used for refinancing, and it can also be used for acquiring other businesses to work under your brand. These are just a few common examples.

Most likely, yes and it’s always a good idea to be truthful.

In most cases, collateral used for a term loan will be business assets such as property, hardware, inventory, invoices or guarantees.

TRADE FINANCE FAQ'S

Any kind of wholesaler, distributor or importer can make use of trade financing. If you require raw materials or stock to operate your business, then it might also be suitable for your needs.

In most cases, yes. Your lender will likely offer alternatives should you not be able to provide purchase orders for your loan requests. However, setting up a purchase order system should be relatively easy and the documents can be manually typed up and submitted to the lender. Once approved, you can continue with your loan as usual. Not having a purchase order system will make it more difficult for your lender to trust your loan amount and they may decline your request.

Unlike other forms of financing, trade finance is secured against the goods that you purchase. The goods bought will act as collateral, meaning you don’t need to worry about losing existing business assets. However, it’s still good to keep in mind that failed payments will reduce your credit rating and will affect future interactions with your bank. You will need to have a good financial track record to prove that trade finance will help your company grow.

Trade finance is typically used to bridge payment gaps between purchasing stock and selling items. For example, if a company requests a large order from you that you typically can’t handle due to limited stock, trade finance will allow you to fulfil that order despite it being outside of your typical order size.

Yes. Trade finance offers your company a line of credit that can easily be used to fulfil larger orders, purchase newer and improved items that benefit the customer and also buy more inventory to create larger orders.

EXPORT FINANCE FAQ'S

Export finance is designed to help companies that want to grow their business by trading with overseas clients.

Export finance is an element of trade finance. Trade finance is a term that relates to both imports and exports.

In many cases, it is possible to access funds within 2-3 days once a financial provider has received your invoices. The timeframe may vary according to the individual provider.

There is no universal answer to this question, and different providers may charge different fees. The fee will usually be taken out of the advance payment. Fees affect profit margins, but they do also give you access to additional services, such as credit checking.

If you’re keen to make use of export finance services, you’ll need to contact a financial provider and give them copies of the invoices for which you are awaiting payment. They will provide you with an advance based on the value of the invoice and then contact the customer to arrange for the invoice to be paid in full. Once payment has been received, the outstanding balance will be forwarded to you.

INVOICE FINANCE FAQ'S

The process is simple. If you have unpaid invoices, you will be able to release funds based on the value of your outstanding invoices. An advance payment will be made (minus fees) and the remaining balance will be settled once the invoice has been paid in full.

The timeframe may vary according to the provider, but many companies provide instant access to funds.

Fees vary according to the individual provider and the value of the transaction. Many providers charge a percentage fee. There may also be a service charge.

If you have unpaid invoices, you engage in business to business trade, and you want to avoid cash flow issues, you may find that invoice financing works for you.

In the past, there was a perception that invoice finance was a reflection of a poorly run business, but this is no longer the case, and invoice financing is widely regarded as an effective solution for modern companies.

MERCHANT CASH ADVANCE FAQ'S

This is limited to what your business receives on an average month. So, if you usually earn around £1000, this is likely to be your borrowing limit.

No. In fact, this loan type is ideal if you don’t have any valuable assets as it is simply based on your average monthly returns.

You can use the advance for anything you see fit but do check the market to see if there are more suitable funding options if you have a specific idea in mind.

No. As your lender will be able to see all your transactions, no credit check is required as there is already full transparency.

As long as you have at least 3 to 6 months of transactional history, through a card terminal, you can apply straight away.