Debt financing

To get help finding suitable debt financing through Funding Options by Tide, you generally need to be a UK-based business or a business that operates in the UK, you must be over 18 years of age, and you must either be registered as a limited company with Companies House, or be a sole trader or freelancer. We only help facilitate funding of between £1,000 and £20 million, so you must also be seeking a loan that fits that criteria. 

Beyond that, each lender has their own eligibility criteria. Some prefer to work with businesses with over 3 years trading history, while others may have a minimum revenue requirement, for instance, an annual turnover of no less than £500,000. 

Some forms of finance require a good business credit score, while others, such as bad credit business loans, may have more leeway. Secured business loans require an asset to be used as collateral for the loan, while some other types of loans require a business plan or exit plan. 

You should know that not meeting your repayment obligations can carry serious consequences. Defaulting on debt finance can result in losing possession of your personal property. You should know how you plan to repay the loan and what you will do if the market dips or you lose a client. 

You should consider carefully how much you want to borrow and exactly for what purpose. This may sound like a given, but think of it like this: let’s say you’re after a £5,000 loan to buy a new piece of equipment. Asset finance, one of many business financing options, could enable you to purchase the equipment while spreading the cost across a year. However, let’s say you also find out you could get a £10,000 business loan instead, with the repayment spread across the same period, and the ability to use the remaining £5,000 on a new growth initiative. Remembering your purpose for this finance, and bearing in mind your budget to repay can help you make this important decision.

The general process goes: 

• Find a lender (or several)

• Decide on the type of financing you need. Generally, you will base this decision on your goals and needs, for instance, if you are looking to purchase a property, you may want to consider a commercial mortgage or a bridging loan 

• Mentally prepare for the decision by calculating how much you can afford to repay and how much you need 

• Speak to the lender directly to find out what documentation they require 

• Gather those documents. For a bridging loan, you might need an exit plan, whereas for a company credit card, you may just need to submit information regarding your cash flow 

• Submit your application either directly to the lender you’ve found or through a broker 

• Wait for a decision 

• If the lender rejects your application, you might like to consider what you can do to improve your company credit record. If the lender approves your application, take another moment now to decide if this is definitely the loan for you 

• Repay the loan, making sure your payments are always on time 

• Some types of debt finance, like a revolving credit facility, enable you to reuse the loan 

Using a broker, such as Funding Options by Tide, can be an easier way to apply for debt financing. Our expert team has experience working with over 18,000 happy businesses, so we’ve seen first-hand what lenders are looking for and may be better able to help you present your application in the best possible light.

We’ve helped over 18,000 customers gain more than £800 million in funding. That experience has given us a special insight into the industry we work in. When you work with us, you’re not just connecting to one potential lender, you’re potentially connecting to over 120, without having to do the legwork of finding them and checking eligibility one-by-one. 

Read our customer stories here. Or, to find out if you’re eligible for a loan of between £1,000 and £20 million, get a quote here.

Debt financing is a service delivered to businesses by lenders. You get a lump sum, an asset, or some other form of funding, which you repay on a recurring basis, with the addition of interest and sometimes fees. Sometimes, you might repay the interest only and then repay the full loan at the end of the agreed term. This latter option is popular with loans such as bridging loans and auction finance.  

Equity finance, on the other hand, is when you sell a portion of your business. You lose part of the ownership in your business and may lose a percentage of future profits, but you don’t need to pay the finance back in that same regular installment way.

Interest rates vary by lender and circumstances, but tend to fall between 5% and 20%. You may also be charged fees, such as arrangement fees, early repayment fees, and factoring fees – but these depend greatly on the type of finance.

Interest payments are often tax deductible, so if you operate a limited company, the interest payments and fees you pay can be added as an expense to your annual accounts, potentially reducing your total corporation tax payment.

Secured loans require the use of an asset as collateral for the loan, whereas unsecured business loans don’t. This doesn’t mean there aren’t severe consequences in the case of a default. Lenders offering unsecured business loans can sometimes ask for a personal guarantee from the founder.

Each lender varies, but the type of financing will also impact how long it takes to get approved. For instance, invoice discounting can come with very fast turnaround times, with borrowers sometimes seeing responses within 24 hours. Short-term business loans are similarly fast-paced, with some borrowers seeing a response within minutes. 

On the other hand, a semi-commercial mortgage can take many months to reach the approval phase. Revolving forms of finance, like a revolving credit facility, an overdraft, or a company credit card, can sometimes come with a reuse feature, which means an approved amount is already in place, ready to be borrowed at any time.

From being hit with late payment fees, to experiencing a negative impact on your credit score (possibly both business and personal scores), to seeing your interest rates go up, the impact of not paying back your loans on time can be far reaching. 

As time passes, you may also get collection calls and letters. Some lenders take legal action against late payments, meaning you could experience court involvement. If you took out a secured loan, the collateral you used could be repossessed, and you may even end up filing for bankruptcy, which has long-lasting consequences for both you and your business. 

Maintaining a good relationship with your lender is important. Part of this is ensuring your payments are made in a timely manner, but another part is being open and transparent with your lender. If you feel you may miss a payment in a given month, or if you need to spread the repayment out further, speak to the lender at the earliest possible opportunity. It’s possible they may be able to support you in some way. 

Yes, this is a popular use of debt financing. If you are eligible, centralising your loans can reduce the administrative burden of managing payments and tracking your finances.

There are several possible risks associated with debt financing. We’ve listed some of these below. 

Debt cycle 

Taking out finance can be the first step towards a debt cycle. This is where you continuously take out new loans to repay the old loans, leaving you with more and more debt. A debt cycle can eat into your profits and create a lot of stress, so do be cautious before entering into any financial agreements. 

Negative credit score impact 

Not repaying your loans on time and defaulting on a loan can have a negative impact on your personal and company credit score, which can impact your ability to borrow in the future. Applying for the loan, in and of itself, can also impact your score temporarily, as a hard search may be added to your record. 

Strain on cash flow 

Debt financing is often used to smooth out cash flow bumps, such as those involved in purchasing seasonal stock, waiting for clients to pay their invoices, or purchasing a property while you sell your current premises. But while that finance can be a helping hand when needed, the regular monthly repayments could put additional strain on future cash flow. We recommend putting together a company budget and calculating what you can realistically afford to repay each month before applying for any debt finance. 

It can be, but you will likely be asked either to put up some form of collateral, a personal guarantee, or even to take out the funding as a personal loan. 

For instance, the government offers a government backed startup loan, which is up to £25,000 in funding to help fund your start up if you’ve been in business for less than 3 years – but this loan functions essentially as a personal loan with support from the government. More established businesses may find greater success in applying for a business loan based on the business’ performance.