Banks are the main providers of business finance in the UK. Their core business finance products are loans and overdrafts. Those bank products account for over half of all UK business finance, with credit cards accounting for another 15%.
Your high street bank isn’t a risk taker and will generally ask you to provide full security for a business loan. So if things don’t work out, they will be able to call in your security which is often your home. However if you don’t own such as asset, the Government has stepped in with the Enterprise Finance Guarantee (EFG), which provides the security for up to 75% of any losses on loans of up to £1million over 10 years. The minimum loan amount is £1,000. Standard bank lending interest rates apply, plus a small quarterly charge. The bank makes the decision on whether to lend or not. They will look at two things:
- Viability (based on your track record, a good business plan and any other funding you have already attracted); and
- That all your available assets are already pledged as personal guarantees before Enterprise Finance Guarantee lending is considered.
Banks remain tough on their viability scoring but it can be worth persevering. If you are sure bank funding should be part of your funding mix don’t give up if you are rejected a couple of times - Sahar Hashemi tried 25 banks before one accepted her application for Coffee Republic!
Community Development Finance Initiatives
CDFI’s lend money to businesses, social enterprises and individuals who struggle to get finance due to poor credit histories, lack of collateral, or lack of business experience. They can also be a source of ‘co-financing’, gap financing’ or ‘bridging loans’.
There are 55 CDFI’s operating in the UK. They are generally independent social enterprises.
Online search tool which allows you to find your nearest CDFI by sector.
The CDFI for the East of England
Credit Unions are mutual savings and loans institutions, owned by their members. There are almost 500 of those small institutions in the UK with around 1 million members. Since 2012 they have been able to lend to small businesses and community groups as well as to individuals.
Credit unions aim to instill good financial habits in their members, and in some cases you need to save for a few months before you can take out a loan or qualify for a lower rate of interest.
The Association of British Credit Unions Ltd (ABCUL) directory of credit unions in the UK.