Funding your Business Guide

Other forms of Financing

credit. The interest rates tend to follow the bank of England base rate plus commission for the bank. The overdraft fees are only charged as you need to dip into the account. There is usually an arrangement fee to set up the overdraft. Credit Cards Eligible customers may get company credit cards. These tend to be higher rates of interest than overdrafts but can offer immediate borrowing solutions. Some of the best ones offer a 56-day interest free period as well as cash back, flexible credit and zero ATM fees. The downsides may be high spending to gain points and annual administration fee for the card. Merchant Financing This is a cash advance repaid through the credit and debit card sales transactions of a company. This is often used by retail, hospitality and leisure businesses that have high number of transactions. The advantage is that business repays directly to the loan company via a small fee direct from their sales. The percentage rate is called a factor rate and can be as low as 7% to as high as 35% depending on the business.

There are lots of different forms of financing and we have summarised some of them here. Invoice Financing A company loans you some money against your expected invoice using the invoice as security. There are two types, the loan format where you still collect your invoices but pay interest to the loan company. In invoicing factoring a company buys your invoice and pays between 75% and 95% of its value. The invoice company then takes on collecting that invoice. Instant VAT Refunds A finance company administrates your VAT returns releasing cash immediately for a commission then collects the money directly from HMRC. You obtain the cash in your bank more quickly than a normal return from HMRC. Bank Overdrafts Some business bank accounts offer overdrafts to eligible customers. This is often used for short term advances of