Small business finance is the biggest headache for any owner-manager after recruitment and retaining staff. Cash flow is the blood of any business and if there’s a problem, your whole business can seize up. At the very least, with unpaid invoices outstanding, all you can do is stand still rather than grow your business.

It used to be that the only option for a small business owner-manager needing finance was to go cap-in-hand to your bank, hoping for an overdraft or a loan. And if you were rejected, well, that was that.

Thankfully, small business finance technology has widened your options – although many small business owners don’t seem to be aware of what’s changed.

Open banking that connects your payment terminal or your accounting software to your bank account means the new wave of lenders can have real-time access and overview of your business. That means quicker, simpler lending decisions compared with high street banks.

‘Finance is like the sixth sense when it comes to running your small business’

This complete guide to small business finance will look at the following:

Small business start-up funding
What are the options for alternative business funding?
Fast business funding and loans

And that’s on top of the plethora of finance product guides and advice you can find on our funding your small business hub.

Remember, finance is like the sixth sense when it comes to running your small business. Without money, you really can’t use the other five.

Small business startup funding

Setting up your own business is one of the most exciting decisions you can make in your life. At last, you can own something rather than make money for other people. But what are the options when you’re looking at raising start-up capital?

Here are the top ten options for small business finance:

• Bootstrapping your business
• Family and friends
• Bank loans
• Fast loans
• Government Start Up Loan
• Crowdfunding
• Angel investors
• Venture capital
• Grants
• EIS and SEIS

Fast business funding and loans

Last month, the Federation of Small Businesses revealed that lending to small businesses is at an all-time low. Fifty-seven per cent of loan applications were being rejected, with just 43 per cent approved.

Collectively, UK small businesses missed out on £3.6bn worth of much-needed finance, according to open banking provider Yolt.

Yolt found the average SME sought to borrow £331,275 to help grow their business, mainly for equipment, technology and business development.

However, on average, small businesses managed to borrow approximately £50,000 less than that.

Is it any wonder that small businesses are turning to fast business loans to ease cash flow, which 42 per cent of SMEs told the FSB they needed to borrow money for?

Technology, whether it’s for an unsecured loan, invoice finance – borrowing against unpaid invoices – or merchant cash advances (borrowing against till takings) have revolutionized how you can finance your small business.

These days, you can get a business loan approved within 24 hours.

Typically, a fast business loan can range from as little as £1,000 up to several million. Repayment terms can vary from one month to 15 years, depending on the type of loan and the lender.

Fast finance is generally better for when you need to raise funds quickly, such as to bridge a short-term cash flow hiccup, or to take advantage of a buy-now opportunity, such as to buy stock in bulk at a bargain discount.

Pro tip: The looser underwriting process means fast business loans often attract higher interest rates, as well as heavy penalties for failure to repay on time

Will applying for finance affect my credit rating?

Most fast business loan arrangers will run with a soft credit check, so it won’t affect your credit rating. However, all these lending decisions are based on your credit score: even if you’re accepted, the rate you pay will be affected by your credit worthiness. Check your business credit rating on Experian and, if you’re concerned, there are credit builder business accounts, such as those offered by Tide or Cashplus.

Alternative business funding options

But your choice doesn’t just end with fast business loans. There are other types of small business finance available, including invoice finance, merchant cash advances and peer-to-peer lending.

Invoice financing

For businesses that regularly sell to other businesses on an invoice basis, this kind of borrowing could be a helpful avenue to help ease cashflow. The invoice financier pays you quickly – most of the time within 24 hours – for your unpaid invoices and takes a cut when the payment finally does arrive.

This option is only available to B2B businesses, so your customers must be other businesses and not the public.

However, there are two types of invoice financing:

Invoice factoring

This is when the lender provides up to 90 per cent of the outstanding invoice and chases up payment with your customers directly. Getting a phone call or a heavy-handed email from an invoice factoring company demanding payment can upset some suppliers.

Invoice discounting

The invoice finance lender lends a percentage of the outstanding invoice but it’s still down to you to chase payment.

Merchant cash advance

If your business takes card payments using a card terminal, this could be the small business finance solution for you.

Unlike a traditional bank loan, there are no interest rates or fixed monthly payments. Instead, you pay the lender a percentage of future card-payment revenue. If your business takes in less cash one month, this is reflected in the repayment and you pay less. If the business has an above-average month, be prepared to fork out a bit more.

This option is a fast way of raising cash. Once approved, a payment processor such as PayPal and its PayPal Working Capital product can get money into your bank account within minutes.

Peer-to-peer lending

Peer-to-peer platforms such as Funding Options and Funding Circle match small businesses with individual lenders for quick and flexible loans.

Once you input the amount you want to borrow and over what period, the platform does the background work, such as checking credit scores, before matching you with lenders.

An advantage of going down the P2P route is a decision on whether you can be granted funding can be made within hours, with the loan becoming available in a matter of days.

More small business finance

Raising start-up capital – who to turn to? – Being a founder can be a lonely business, especially when raising money for your start-up. Don’t worry, help is at hand. These advisors will either invest, help you crowdfund or put you in the best possible place for seed funding