In the dynamic landscape of business, financing plays a pivotal role in propelling businesses towards success. Whether you're a startup seeking funds to get going or an established enterprise aiming for expansion, understanding the diverse array of lending options available is crucial; from traditional bank loans to various types of asset finance.

One of the key drivers of lending rates is the Bank of England (BoE) base rate or Bank Rate- this determines the interest rate BoE pay to commercial banks that hold money with them. At the time of writing this Article (April 24) the rate is 5.25%. The rate business owners will often be driven by this- for example you can often be quoted 5% plus BoE base rate.

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Unsecured lending‍

An example of this would be a traditional bank loan (or term loan).

In addition to the set up fee, we're currently seeing an annual rate of 9 - 16% for strong businesses(including BOE base rate). A strong business will have a healthy credit score and strong debt serviceability for the most part. The rates for those who are deemed to be a higher risk can be much higher for those lenders with broader risk appetites. The higher the interest rate, the less likely a lender will require a personal guarantee, but it is something to be aware of.    

If you are looking for short term borrowing it is worth looking at lenders who offer 'revolving credit lines' e.g. overdraft facility or credit cards. They often have no set up fees or early repayment charges. The key thing here is to consider the full cost of borrowing.

Lending against Assets‍

Providing an asset as security is a great way of reducing the risk for the lender. Therefore, products like invoice finance, asset re/finance allow clients to access lower rates of borrowing.

Invoice Finance

This is where you borrow against unpaid you have on your debt book allowing you to access a percentage of the funds immediately and not waiting 30 / 60 / 90 days. This can in the right situation, provide long term scalable cashflow for business to business activity that (based on recent pricing) typically charge a 0.25-1% annual service fee and 1.5-3% discount fee based on funds used. You can typically borrow up to 90% of the invoice value, but this does vary dependent on sector and invoice/customer risk.

Asset Finance

This is where you borrow against an asset you are going to purchase.

We typically see also see rates of low single digits above the base rate but it really depends on the asset type, loan amount vs the value of the asset etc. Starting rates on asset finance are 4.5%.

Property lending: Given the fact this is an appreciating asset the rates and terms you can get are typically the best.

Owner Occupied Commercial Mortgage or Commercial Investment Mortgage

This is used to purchase or refinance property that will be used as the premises of the applicant or let to tenants. You can typically borrow up to 75% loan to value, the repayment profile typically 15-30 years, pricing starts at 1-2% above BoE base rate so 6.25%. Borrowing available starts at £100,000 if for your own business or £250,000 for an investment mortgage.

Bridging Loan

Short-term loans secured against property which are used to occupy or trade from a site until a longer-term solution is found. This type of lending is typically short term up to 3 years and can borrow 75% of the value of the property. Interest rates start 0.75% per month (due to the short term nature interest is calculated monthly). Another benefit of this type of lending you can access finance in a couple of weeks.

Development Finance

Used to finance the construction, conversion or refurbishment of buildings once planning permission is granted. This is also short term lending, typically from 6-24 months, you can access 70% of the day one valuation of the build assuming planning is in place. Interest rates you can expect are 0.5-1.5% per month.

These are just a few examples of lending we have seen at Gravitate Accounting. To find out what funding is available for your business, click here and simply answer a few questions about you and your business.