SME loans: finance for small and medium-sized businesses by sector

Look for a whole-of-market broker with a wide lender panel, experience in your sector, fees explained in writing and genuine client reviews, rather than relying on a ranking. Smart Funding Solutions is a Chester-based, whole-of-market commercial finance broker, a member of the NACFB and FIBA, that matches SMEs to suitable products from a panel of over 300 lenders, with nothing to pay upfront.

What to look for

• A wide panel. Banks, specialist and alternative lenders, so you see flexible options such as revolving credit and invoice finance as well as loans.
• Transparent guidance. A clear explanation of each offer and of how the broker is paid. See how we are paid.
• Checks you can make. The FCA Register, Companies House and trade body membership.
• Evidence. Real client reviews and completed deals.

How we match a business to the right product

We start with what the money is for, then look at your trading history, turnover and security to work out which products and lenders fit. We approach suitable lenders and set out the offers side by side. Our guide on why to use a business loan broker explains more. Instant Quotes shows which lenders on our panel may suit you, with no credit check.

There is no single legal definition. Government statistics and many lenders use headcount as the main test:

• Micro businesses: fewer than 10 employees (see our guide to micro business loans)
• Small businesses: fewer than 50 employees
• Medium-sized businesses: fewer than 250 employees

Other definitions add turnover and balance sheet limits, and the Companies Act sets its own thresholds for accounts and audit purposes. Lenders and government schemes may apply their own criteria, so check the definition that applies to the product you want. Businesses above these thresholds have different options; see finance for large businesses.

• Buying equipment or vehicles? Asset finance usually fits best, because the asset secures the agreement.
• Waiting for customers to pay? Invoice finance or a revolving facility matches funding to the gap.
• Taking card payments every day? A merchant cash advance flexes with takings, though compare the total cost.
• Funding a one-off project? A term loan, secured or unsecured, gives a fixed repayment plan.
• Facing a tax bill? A VAT or tax loan spreads the payment without draining working capital.

Most UK-registered SMEs that are trading, can show affordable repayments through their bank statements and accounts, and have a reasonable credit record for the business and its owners can qualify for some form of SME loan, although the product and the lender will depend on their sector and age.

We work with limited companies, LLPs, partnerships and sole traders registered and trading in the UK. Each lender sets its own criteria, but most look at:

• Trading history: many lenders prefer a year or more of filed accounts; some consider younger businesses
• Turnover and affordability: shown through bank statements and accounts
• Profitability and cash flow: whether the business can comfortably service the repayments
• Credit history: of the business and its directors or owners
• Existing borrowing: and how it is being repaid
• Security: property, assets or personal guarantees, depending on the product
• Purpose: a clear reason for the funding and how it will be repaid

Finance of £25,000 or less to sole traders and small partnerships can be regulated consumer credit, which gives you additional protections.

A weak credit history narrows the field rather than closing it: our guide to bad credit business loans explains which lenders consider CCJs, defaults and arrears, and what they look for.

SME lenders usually take one or more of three things: a personal guarantee from the directors or owners, a debenture over the company, or a charge over a specific asset such as property, equipment or the sales ledger.

Unsecured loans and tax funding generally rest on a guarantee alone, while asset finance and invoice finance are secured on the equipment or invoices being funded, often backed by a guarantee as well. Larger term loans and revolving facilities frequently add a debenture, registered at Companies House, which can make a later lender ask the first for consent. If you prefer not to give a guarantee, see business loans without a personal guarantee; our guide to debentures and fixed and floating charges explains how company security works.

The Growth Guarantee Scheme, delivered by the British Business Bank through accredited lenders, gives lenders a partial government guarantee on eligible facilities for smaller businesses. The borrower remains fully liable for the debt. Check the British Business Bank for current availability and which lenders take part.

For founders who have not yet started trading, the Start Up Loans programme is the main government-backed route; see start up business loans for how it compares with asset finance and secured lending.

If a loan is not the right answer, SMEs can often fund a need through grants, investors, HMRC payment plans or by releasing cash already tied up in the business.

• Grants suit specific projects but are competitive and often need match funding; our guide to business grants versus business loans compares them.
• Equity investment brings in capital without repayments in return for a share of ownership, as explained in our guide to debt versus equity funding.
• For tax bills, HMRC may agree Time to Pay.
• Asset refinancing or asset-based lending releases cash from equipment, stock or debtors you already have.