Whether you’re just getting started with your new business, you’ve got a seasonal company that sees a yearly slump or you’re looking to invest in a must-have asset, getting the finance you need can seem like a daunting and almost impossible task.

With banks, lenders and investors all offering financial support for businesses, picking the one that can suit your business best and successfully submitting an application can take a bit of inside knowledge and plenty of research.

Whether you’re thinking of going to your bank, heading to a direct lender, or even looking to compare personal loans now, we’ve compiled this guide to help you work out the best small business financing options for your business.

Work out what you need

Before you apply for any kind of business finance, you’ll need to know what you need. Unlike personal finance, where a rough estimate can often suffice, a lot of business lenders will want a full breakdown of your business assets, expenses, how much money you have in the bank and your plan for the money provided by the loan.

The information lenders will want to see can include business plans, projections and financial forecasts. If you aren’t too sure of the financial side of the business this Beginners Guide to Financial Reports will be very helpful.

Whether you’re just getting your business off the ground and are looking for the cash injection to help you get started, or you’re in need of cash to get through a slow season in your industry, you’ll need the following for most applications:

Details of your assets

While unsecured business loans are available, most loans for larger amounts or for longer periods of time may need to be secured against your asset.

For that reason, banks and some financial institutions might want to see details of assets to determine what collateral the loan will need. This is usually your businesses property where available, though can also be the title or copy mark.

Expenses

Expenses for your business will include any payments you need to make before, during and after starting up. Whether that’s hosting costs for a website, design fees, rent on your premises or hiring employees, every cost will need to be detailed to get a full overview of your financial situation that lenders can use.

They need to ensure that you are a safe bet when it comes to lending and that they aren’t likely to lose money by accepting your application.

Money in the bank

Following on from the point above, lenders will want to know how much money you have in the bank to cover other costs, though this is typically more startups than existing businesses.

Even if lenders don’t want to know, having some indication of the funds you have can help you determine how much you actually need from the loan.

Your Balance Sheet

For banks, your balance sheet will be the core source of your financial position. It will list assets, liabilities, net worth and more, to provide creditors and investigators with an overview as to how your finances are being managed and your current financial strength.

An Income Statement

This statement will be how a lender determines the affordability of your loan. It provides them with insights into how much your business brings in, your expenses and, of course, what is left over afterwards that can be used to pay off the loan.

The above will not only provide the lender with information regarding your financial state but can help you determine how much you actually need and can afford to borrow. With the figures in front of you, you can better determine the ideal amount for your business’s loan.

Picking a finance source

Once you’ve worked out the amount you want to borrow and gathered the documents you might need, the next step is to determine what kind of finance your business will benefit from most.

While borrowing from friends and family would be ideal for everyone, not every business owner can borrow from the proverbial bank of Mum and Dad or might need more than their family can afford.

Fortunately, there are a wide variety of different loans available for small businesses to cater to every need, loan amount and current financial situation. These include:

Bank finance

The familiarity of heading to your bank to ask for a loan is a powerful lure that countless businesses fall for every single day. However, banks have also become notoriously difficult to convince when it comes to loans for businesses, particularly where start-ups with minimal assets are concerned.

Whether you’d be applying for a loan or asking for an overdraft on your business’s bank account, you need to have a viable business plan that is seen as creditworthy in the eyes of the institution. Banks are less likely to take any risks when it comes to lending, so you need to have a convincing case that the money will be repayable according to the loan arrangements.

If you apply for a loan, this will be provided for a set amount of time with agreed repayments and a set or variable interest rate depending on the loan terms you agree to.

Fixed-rate loans are perhaps the best option for businesses on stricter budgets, as you’ll know how much needs to be paid back and by when, with some banks potentially willing to extend the loan if your business falls on harder times or you are unable to meet a repayment deadline due to unforeseen issues.

Overdrafts, on the other hand, are a form of credit that is designed to offer short-term financing to businesses who might need a quick cash injection to make a small purchase.

Overdrafts can come with different limits depending on your business, the credit history and the bank you choose, but it’s important to be aware that interest rates can be higher on overdrafts than with loans.

You can repay the overdraft whenever you see fit, but there is less security in that banks can demand you pay back the owed funds at any time.

Direct lenders

Direct lenders are an alternative to banks, in that they offer loans to both individuals and in some cases businesses, without having to go direct to a bank.

Depending on the amount you’re looking to borrow, you may be able to apply for an unsecured loan that doesn’t require any assets as collateral, effectively protecting your business’s property from potential repossession if you fall on harder times in the future.

For this reason, you’ll also find that direct lenders don’t require as much of an insight into your business plans as a bank would and that you won’t have to provide as in-depth of an insight into your current financial situation.

Most direct lenders will conduct their own investigation into your credit history and, providing you have a good credit score, you can obtain funding without having to source investment from a bank. These loans also tend to span over a much shorter amount of time, and you may have more control over the repayment terms than with a bank.

Loan calculators also enable you to work out your ideal loan terms before application, to prevent any credit checks taking place and effecting your score ahead of applying.

Generally speaking, direct lenders are suitable for your business if:

• You know how much you need – Lenders offer faster application and acceptance than standard banks, so if you already know how much you need and your desired repayment period, direct lenders can save you time and unnecessary stress.

• You have time to shop around – If you have the time and resource to do a bit of research, you can find the best deals, rates and criteria for your business.

• Your credit score is fair or good – If you have a fair or good credit score, direct lenders can offer faster decisions on loans that don’t require an asset as collateral.

If you aren’t sure where to start, don’t have the time or resource to start a comparison or you have any questions about the application process, using a broker can save time, money and ultimately help you to find the right lenders for your business according to their terms, criteria and more.

Additionally, the support of a broker can help start-up businesses source lenders who are most likely to accept their application, even with limited credit history.

Government Finance

The UK Government has certain grants and loans available for businesses that are in the midst of growing, providing they meet certain criteria first. Grants won’t need to be paid back but can be difficult to obtain due to the stringent criteria.

While all of the criteria are listed online, knowing where to start can help you hit the ground running when you begin to apply.

For young people, the Start-Up Loans Company is a government-backed business designed to provide unsecured and relatively affordable loans for young people looking to start-up businesses, providing you can provide a strong and effectively foolproof business plan.

There are mentoring programmes available too, as well as advice and support for things like growth strategies and financial forecasts, so this could be a beneficial place to start if you still feel lost with starting up your very first business.

If you’re looking to bring in information and expertise around innovative ideas to bring something new to the table in your chosen industry, the government offer Innovation Vouchers. These vouchers are designed to help support these moves financially.

This expertise can only come from businesses or institutions that you haven’t dealt with before. The full terms of these vouchers can be found on the Government website.

If you are still unsure on which finance options are available for your business from the government, you can contact support helplines for insights into what you could be eligible for.

Financing a small or start-up business can feel impossible at times, but the reality is very much the opposite. With the right funding options, you can give yourself the boost you need to get started in your industry or get through tougher times when things may be slow.