Types of Business Finance Explained

There is no single "business loan" that fits every situation. UK commercial finance is a set of distinct products, each built around a different need and a different way of getting repaid. The main types are term loans, bridging finance, invoice finance, asset finance, commercial mortgages, development finance, and trade or stock finance. Picking the right one usually matters more than chasing the lowest headline rate, because a mismatched product either costs more than it should or gets declined outright. As a broker, we do not lend or set rates; we match your case to lenders who are actually open to it, and the lender prices and decides each application on its own merits.

A term loan is the closest thing to what most people picture as a business loan: a lump sum repaid over a fixed period, often one to five years for unsecured facilities, with regular repayments of capital and interest. Unsecured term loans are typically underwritten on trading history, turnover, and affordability rather than an asset, so lenders scrutinise your accounts, bank statements, and often director profiles. They suit general working capital, hiring, a marketing push, or smoothing a lumpy month. Larger or longer term loans are usually secured against property or other assets. Pricing is indicative until a lender sees the file, and both the rate and the decision sit with them.

Bridging finance is short-term, secured against property or land, and designed to be repaid within a defined window (commonly up to 12 to 18 months) via a sale or a refinance. It exists for speed and for situations a mainstream lender cannot move on quickly enough: an auction purchase, a chain break, buying before selling, or refurbishing a property to a lettable or saleable standard. The exit strategy is the thing a bridging lender interrogates hardest, because that is how they get their money back. Rates are quoted per month rather than per year and vary widely with the security and the loan-to-value, so any figure is illustrative until the case is assessed.

Invoice finance advances cash against your unpaid sales invoices, so a business that invoices on 30, 60, or 90-day terms does not have to wait to get paid. The lender typically advances a large proportion of each invoice up front (often around 80% to 90%, indicative and case-dependent) and releases the balance, less their fee, once your customer pays. It suits B2B businesses with a solid debtor book and recurring invoicing, and it scales with your sales rather than sitting as a fixed lump sum. The strength of your customers and the quality of your ledger drive what a lender will offer.

Asset finance funds equipment, vehicles, plant, and machinery by spreading the cost over the asset's useful life, usually through hire purchase (you own it at the end) or leasing (you use it, sometimes with an option to buy). Because the asset itself is the security, asset finance can be more accessible than an unsecured loan and preserves cash you would otherwise sink into a one-off purchase. It suits any business that needs kit to trade, from a single van to a factory line. The advance, term, and whether a deposit is required all depend on the asset and the lender's view of it.

Commercial mortgages are long-term loans (commonly 15 to 25 years) to buy or refinance business premises, whether you occupy them yourself (owner-occupier) or let them out (commercial buy-to-let or investment). Lenders look at the property, the loan-to-value, and either the business's ability to afford repayments or the rental income covering them. Development finance is different again: it funds ground-up builds or heavy conversions, releasing money in stages against a build programme and lending against the projected end value. Both are assessed case by case, and the lender prices and structures each deal around the specifics.

Trade and stock finance bridge the gap between paying a supplier and getting paid by your customer. Trade finance funds the purchase of goods you have a confirmed order for, often paying the supplier directly, while stock finance releases cash against inventory you already hold. Both suit importers, wholesalers, and product businesses with seasonal or bulk buying cycles. They are specialist and heavily case-dependent, so the sensible first step is a quick conversation about the order or stock in question.

Across all of these, no honest broker can promise a rate or an approval before a lender has seen the case; anyone who does is guessing. What we do is tell you quickly which product genuinely fits, which lenders are open to it, and then get the right one instructed. If you are not sure where your need sits, start with what you are funding and how you expect to repay it, and the product usually chooses itself.