5 types of business funding for UK tech companies

Funding Options explain five types of business funding that can help your UK tech company expand and reach its goals

The UK technology sector is thriving.

A Technation report published in 2021 revealed that UK tech companies attracted $15bn (£11.2bn) in venture capital funding in 2020 – the highest on record.

The nation is now home to more unicorns than any other country in Europe.

Still, not all tech businesses receive venture capital and therefore many tech businesses may benefit from additional funding to operate and grow.

Additional funding can enable a tech company to develop and market new solutions, for instance, or to hire new staff to meet an increase in demand for products or services.  

While tech companies can often find it difficult to obtain a business loan from a bank, there are a number of more accessible funding facilities available on the wider financial services market today.

If you run a tech firm and need funding, working capital loans, term loans, invoice finance facilities, merchant cash advances and ecommerce facilities are worth a look.

We’ve considered the following tech company types in this quick guide:

  • High volume B2B or B2C firms
  • Software-as-a-Service (SaaS) companies
  • Technology consulting businesses
  • Ecommerce companies

1. Working capital loan

Working capital loans are used by businesses (tech or otherwise) to help fund everyday operations, such as paying staff wages, utility bills or rent.

They’re designed to cover short-term expenses as opposed to long-term investments and the funds are typically borrowed over a 12-month period.

Insufficient cash flow is one of the primary reasons UK businesses fail.

Working capital finance allows you to pump vital cash back into your tech company so you can continue to operate as normal, even during periods of reduced trade. 

Who’s it for?

Working capital loans can be suitable for high volume B2B or B2C tech businesses, SaaS businesses and technology consulting firms, and others.

2. Term loan

Term loans enable you to borrow a lump sum up front and pay it back over a period of time, e.g. three years. You’ll agree to a repayment schedule and pay a fixed or variable interest rate.

Businesses use term loans to fund a variety of business activities. As a tech company, you might use the money to purchase new equipment, hire new staff or expand your operations. 

Term loans fall into two categories: secured and unsecured.

Secured loans typically use an asset you own, such as property, as security for the loan. It means that if you don’t keep up with your loan repayments, you could lose your asset.

Unsecured loans don’t require an asset to secure the guarantee of the loan, however interest rates tend to be higher.

An unsecured loan might be more suitable if your business doesn’t own assets (as many tech companies don’t), or you don’t want to offer a personal guarantee.

Who’s it for?

Term loans can be suitable for high volume B2B or B2C businesses, SaaS businesses, technology consulting firms and more.

3. Invoice finance

Are unpaid customer or client invoices disrupting your tech business?

If so, you might be eligible for invoice finance.

Invoice finance is an umbrella term for funding that allows you to access a large percentage (up to 90 per cent) of the value of your invoices quickly – sometimes within just 24 hours.

The lender uses your unpaid invoices as security for finance; the amount they’re willing to lend will depend on their own individual criteria.

You can finance just one or multiple invoices and use the funds to boost your cash flow or to invest in your business, depending on your needs.

Invoice finance falls into two categories:

Invoice factoring

As well as lending you up to 90 per cent of the value of your invoices, the lender will also assume management of your sales ledger and retrieve payments directly from your customers. After deducting their service fee, they’ll pay you the remaining balance.

Invoice discounting

Invoice discounting works in much the same way as invoice factoring. The main difference is you remain in control of customer payments.

Who’s it for?

Invoice finance can be a suitable option for technology consulting firms, SaaS businesses, subscription services and more.

4. Merchant cash advance

Merchant Cash Advances (MCAs) are designed for companies that take customer card payments. So, if you run an online business and take credit or debit card payments, this finance type could work for you.

One of the key benefits of MCAs is the flexibility. Repayments flex in line with how much business you do, making repayments much more manageable.

Who’s it for?

Merchant cash advances can be a suitable option for high volume B2B or B2C businesses, tech businesses that sell products through their website or on through a third-party site like Amazon, and more.

5. Ecommerce finance facility

Ecommerce facilities are specifically designed for businesses that sell goods online, so this option is worth exploring if you’re looking for finance to fund expenses or fuel growth.

If eligible, the lender will provide you with funds based on your future ecommerce sales. The money can be used for a range of purposes, such as obtaining new users, investing in marketing or purchasing stock.

Who’s it for?

Ecommerce facilities can be a suitable option for online retail companies, SaaS businesses, subscription businesses, online marketplaces and more.

Funding Options was named one of Europe’s Top 1000 fastest growing companies in 2021 by the Financial Times. You can use the Funding Options platform to find the funding your tech business needs to operate or grow.

Read more

How to choose the right finance option for your SME

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