Cash flow finance for UK businesses

Most cash flow lending is unsecured. Instead of valuing assets, the lender looks at your recent business bank statements, turnover and existing commitments to judge whether you can comfortably afford the repayments. Depending on the product, you repay in fixed instalments, as a share of your takings, or only on the amount you have drawn.

Because there is no property security, lenders normally ask directors for a personal guarantee, and the cost is typically higher than for secured borrowing.

An example: wages, rent and utilities are due, a large customer pays late and an unexpected repair bill arrives in the same week. A short-term facility covers the gap so you meet your commitments, and you repay it as normal trading income comes in.

UK limited companies, partnerships and sole traders that are already trading, usually for at least six to twelve months, with steady deposits into a business bank account and room in their income to meet the repayments can typically qualify for cash flow finance. Lenders build that judgement from the following.

• recent business bank statements and turnover
• time trading, and filed or management accounts
• existing debts and repayments
• business and director credit history
• your cash flow forecast and what the funds are for

In practice, underwriters read several months of bank statements for the average monthly income, the lowest balances, any returned payments and repayments already going to other lenders. Two businesses with the same turnover can get very different answers: one lender may be comfortable with a hospitality business that dips every January, while another declines it on the same figures.

Credit history is only one factor. Many cash flow lenders put more weight on current trading, so options can still exist if your record is not perfect, usually at a higher cost or for a smaller amount.

Sole traders are assessed slightly differently, because there are no company accounts and you are personally liable for the debt. See sole trader business loans for the steps and documents involved.

Cash flow finance rarely needs property security, but most lenders ask for a director's personal guarantee and, on larger facilities, a debenture over the company.

The detail differs by product. With invoice finance the funder takes ownership of, or a charge over, the invoices themselves and usually a debenture, often backed by a warranty or indemnity from the directors. Revolving facilities and larger unsecured loans may be supported by a debenture and guarantee together, while some merchant cash advance providers rely mainly on the card takings. If you would rather not give a guarantee, see business loans without a personal guarantee; if you can offer property, a secured business loan may be cheaper over a longer term.

If you would rather not offer property, our guide to unsecured business loans explains how lenders decide without an asset and when a personal guarantee is needed.

If cash flow lending is too short-term or too costly for what you need, the main alternatives borrow against assets, spread a liability or use your existing bank facilities.

• Asset refinancing releases cash from vans, plant or machinery you already own.
• Asset-based lending combines debtors, stock and equipment into one larger facility for established businesses.
• A bank overdraft can suit small, occasional dips; our guide to overdrafts versus business loans compares the two.
• For a tax bill specifically, agreeing a payment plan directly with HMRC may be possible; see Time to Pay versus a tax loan.

A cash flow loan for a small business is borrowing sized on your takings and bank statements rather than on property. It covers a gap between money going out and money coming in, and is repaid as the gap closes.

For smaller businesses, the options lenders on our panel offer most often are:

• Short-term business loans for a single, known gap, repaid in fixed instalments.
• Merchant cash advances for businesses that take most sales by card.
• Revolving credit for gaps that keep coming back.
• Selective invoice finance to fund one or two large invoices.
• VAT loans and corporation tax loans to spread a tax bill.

Sole traders and newer businesses have fewer lenders to choose from: see sole trader loans and start-up business loans. The British Business Bank: other forms of finance guide explains these products in plain terms. To see which lenders match your business, get instant cash flow finance quotes, with no credit search.