If you are considering generating extra funds to run your business, then one option is a business loan. The loan that will be offered to you will depend on your business and its funding needs and will need to be repaid back with interest.

Read below to see some the main types of business loans that are available, what they might be used for and whether any of them might be a good match for your business:

Secured business loan:

where businesses are required to put up an asset (as collateral), such as a property, as security to be able to access a lump sum of money. As a result, lenders may offer a larger amount with a longer repayment period and lower interest rates.

Unsecured business loan:

these loans are characterized by their absence of collateral requirements and allows businesses to borrow a lump sum and repay it in fixed instalments over an agreed period. Because there is no security, interest rates on unsecured loans tend to be higher than on secured loans and some lenders may require a personal guarantee.

Short-term business loan:

also covers bridging loans, this is a loan that is repaid over a shorter timeframe and the interest rates may be higher than on a longer-term business loan. These loans would usually need to be repaid within a few months or, depending on the lender, possibly within 2 years and is suitable for businesses that need to cover any kind of immediate cost or an emergency expense.

Working capital loans:

another type of short-term loan specifically designed to help cover gaps in cash-flow such as payroll, rent and debt payments to enable you to continue running your business. This loan is especially useful if you own a seasonal business that experiences peaks and troughs in income throughout the year. In order to repay this type of loan you need to be sure your business will have the money to repay in full and on time.

Invoice financing:

is a financial tool where lenders provide funds to businesses using their outstanding customer invoices as collateral. The loan is then repaid as the business collects payment from its customers. Payment is usually made within 48 hours and the sum received may vary from 75% to 95% of the invoice value. You retain control of your sales ledger and are still responsible for chasing your customers for payment. There is usually has no need to provide assets as collateral, nor are the owners or directors required to supply a personal guarantee.

Asset financing:

this loan offers businesses a way to secure funding by leveraging their existing assets. This financing model can be used to spread out payments for large equipment or vehicle purchases over a period, alleviating the pressure of large upfront costs. It also includes options for leasing assets or borrowing against the value of owned assets, providing flexibility based on a business’s unique needs and circumstances.

Business credit lines:

this is a flexible financing arrangement that provides businesses with access to a set amount of funds, from which they can draw as needed, much like a credit card. The key advantage is that you only pay interest on the amount you use, not the total credit limit, and repayments are typically more flexible than on term loans. Some credit lines are ‘revolving’ meaning that once you pay back what you owe, you can access the full amount again, assuming you stick to the terms of the agreement. Credit lines can be both secured and unsecured.

Merchant cash advance:

this is a is a unique form of financing where businesses receive a lump sum of cash up front, which is then repaid through a percentage of their future credit or debit card sales. It would, therefore, only suit a business that handles many card transactions. There is no minimum or fixed repayment each month. The amount you can borrow will depend on a number of factors, including how much money your business makes from card transactions each month so you may not be able to borrow as much compared to other types of loan.

Government loans:

such as the Start Up Loans scheme, are available to businesses that have been trading for under 3 years and meet other eligibility criteria. The loans are from £500 up to £25,000 and provides invaluable support to new businesses by offering both funding and mentoring. Or the Recovery Loan Scheme which allows small businesses to access a variety of loans such as an existing term loan or a revolving credit facility. Governments also offer grants for businesses operating in specific industries or locations, or those engaging in certain activities, thereby providing a financial boost without the obligation of repayment.