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Small business loan vs cash advance: what is the difference?

Small-to-medium enterprises, or SMEs, represent around 90% of all business, and 50% of global employment according to the latest estimated by the World Bank. Small businesses represent the majority of the marketplace, but lenders are less certain about their prospects and so many such companies fid it difficult to secure credit financing.

Two ways in which an SMEs can secure credit are business loans and business cash advances, but what are the differences?

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What is a business loan?

A business loan is a form of lending, geared towards providing a company or other professional organisation with short-term cashflow – whether for growth purposes, or to weather a downturn in finances. Where a traditional personal loan is leveraged against the individual that applies for it, business loans are most commonly secured against the business and its assets.

There are two key types of business loan: secured, and unsecured. Secured business loans utilise business assets as a form of security or “collateral”, which the lender can seize and sell in the event the business cannot pay back the loan. Unsecured loans are more useful for smaller or younger businesses, as they do not require any form of asset security to set up, but at the same time generally come with a higher interest rate to compensate for the additional risk to the lender.

What is a business cash advance?

A business cash advance is a form of lending based on a given business’ existing and projected card revenue. Cash advances are generally a fixed sum with a variable repayment rate; a lender will examine your cashflow and potential future income from card transactions, and offer you a percentage of that card volume as an advance payment. Repayments are variable in relation to your actual monthly card volume, where you pay less on months with fewer transactions.

What are the differences?

Business loans and cash advances share some core traits in common, but generally serve different purposes. They are both key forms of borrowing for growing and established businesses, presenting the opportunity for sustainable growth with shrewd financial planning. However, they also have some crucial differences that are well worth understanding before making any major decisions on behalf of a business.

Firstly, business loans are a long-term form of lending. Though it is possible to take out short-term business loans, a majority include repayment terms of a year, 18 months or longer – with the ceiling for repayment periods at 25 years. Cash advances are typically shorter-term, and can often be organised more quickly.

While repayments for business loans are regular each month, the amount you repay in total could change depending on the rate of interest on the loan. Meanwhile, business cash advances are for an agreed fixed sum with repayments taken as a proportion of revenue, so the final bill will not change but it may take more or less time to pay it back and the monthly cost will vary depending on revenues.

Source: Descrier

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The UK economy can thrive by supporting women

£250bn would be added to the UK economy if women started and scaled up businesses at the same rate as men.

In the past two years, with the economy disrupted by a pandemic and lockdowns, many people have had to find new ways to make ends meet. One less-told side of that story is that Companies House data shows 140,000 businesses were started by women in 2021, compared to 56,000 in 2019. The NatWest SME (small and medium-sized enterprise) Taskforce devoted its most recent event to discussing how women entrepreneurs can be better supported and financed to build on this.

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NatWest’s A Springboard to Recovery report highlighted that increasing female entrepreneurship and the productivity of women-led businesses is one of the biggest opportunities for growing UK gross value added (GVA). More than doubling the number of women-led businesses and increasing their productivity by about 40 per cent would drive around £50bn in GVA, adding around 50,000 new female entrepreneurs and 260,000 more women-led businesses in the UK economy by 2030.

There have been a series of efforts to support more women entrepreneurs and to remove the barriers to them. In 2019, Alison Rose, chief executive of NatWest Group, was asked by the Treasury to look into why women face more barriers in entrepreneurship. In response to her report, the government announced an ambition to increase the number of women entrepreneurs by 50 per cent to 600,000 by 2030.

“The headline from the initial report many of you will remember was that if women were to open and scale businesses at the same rate as their male counterparts, it would add £250bn to the UK economy,” said Julie Baker, head of enterprise, climate engagement and partnerships at NatWest.

Baker set out some of the work she has been doing with strategic partners from both the private and public sector to support entrepreneurs, especially those from “harder-to-reach” communities and minority communities. “Two years into the pandemic, female entrepreneurship has proven to be exceptionally resilient. And in fact, I think we were all surprised when we saw the number of female-founded firms that were created last year,” she said.
“We know that a lot of females were impacted by furlough,” Baker continued, with around 58 per cent of all those furloughed being women. Many worked in lower-paid jobs and in sectors that were badly affected by the lockdowns, such as retail, health and beauty. “They all sat at home thinking ‘what can I do with all this time’ and they set up a business,” she said.

However, one of the persistent issues for women-led businesses is how to scale up, and it is not yet clear whether these new businesses will carry on as “side hustles” or scale up. Baker said NatWest is launching a Gender Index, which will keep a live count on women-founded companies, and that it will be updated on a regular basis.
One of the main barriers to women is still access to finance. Data shows women-led businesses got less money on average from, for example, the Start-up Loan and Bounce Back Loans schemes, and women often do not ask for the amount of capital they need, Baker explained. This disparity in funding is an issue “across the board” she said.

“Women tend to be more conservative than men, even though they tend to outperform men,” added Demi Ariyo from lending platform Lendoe. “We’ve seen that across the board in our portfolio, particularly with repayments as well.”

The Investing in Women Code launched with 20 members in 2019 and commits financial institutions that sign up to share their data on lending to women and report annually. This means they are committed to focusing on making their processes simple for women to access finance. The Investing in Women Code now has 134 signatories, including mainstream banks and venture capital, such as the UK Business Angels Association. Members are also making more funding available to women entrepreneurs. NatWest Group’s Rose launched a £2bn SME fund at the bank and other banks are now following suit. Alongside this are best practices in place to support entrepreneurs, such as event programmes, mentoring, and access to markets and networks.
Childcare is another key issue for women entrepreneurs, with many women taking on even more caring responsibilities during the pandemic. Women entrepreneurs took on an average of six to ten hours more caring responsibilities than their male counterparts, and 62 per cent are less likely to recover financially as a result of that inequality, Baker said.

The UK Business Angels Assoication is working with NatWest and other partners on a women angel investment campaign, with a focus on regional events supporting mentoring and work with stakeholders. The organisation’s executive chair, Jenny Tooth, said they are currently mapping out the picture of women angel investors and running a “women backing women” campaign to encourage women investors to invest in companies led by women.

In a challenging economic environment, investing in women entrepreneurs and women-led businesses can deliver huge economic and social benefits. The challenge is to remove those long barriers that keep women from starting up or expanding and ensuring that the impact of economic uncertainties in 2022 does not halt or reverse the progress we are making as a business community.

By Andrew Harrison

Source: The New Statesman

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Nearly two thirds of SMEs find digitalisation useful for revenue growth

New research from IONOS, one of Europe’s largest cloud and hosting services providers, has found that just under two-thirds (63%) of SMEs find digitalisation useful for revenue growth, and nearly three-quarters (70%) of those asked find it useful for winning new customers.

IONOS conducted the research to understand where digitalisation is tracking in terms of businesses priorities and what aspects SMEs find important for driving their business forward, as well as key challenges. The research, conducted by YouGov on behalf of IONOS, polled a total of 1,002 UK SMEs.

The research also explores how UK SMEs compare to their European counterparts, with over 3,000 individuals in France, Spain and Germany polled.

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Interestingly, the results show that UK SMEs feel less impacted by barriers to digitalisation, compared to their European counterparts. Respondents in all countries rate costs and lack of time as the major barriers to digitalisation for their companies, however the UK came out lowest for both of these with four in 10 stating both time (42%) and costs (40%) as key issues.

UK businesses also feel more knowledgable overall about digitalisation, with only 29% saying this is a barrier, compared to over half (51%) of those asked in Spain.

The UK is the frontrunner in digitalisation implementation when compared to the other countries polled, with almost 80% of UK SMEs surveyed having a website, 76% using an email with their own domain and 64% using social media to further their business needs. France came out much lower, with just over half of those asked having a website (52%), and under half (47%) using social media.

Following the pandemic, digitalisation continues to be central for SME business models, with three quarters (76%) stating it as important to the future viability of the business.

Given the increase in cyber attacks experienced since the pandemic, and the tightening of data compliance, it’s unsurprising to see that – besides being visible on the internet (46%) – IT security and data protection are two of the top areas of focus for SMEs implementing digital measures (42%), followed by collaboration with employees, partners and customers (39%) and digitalisation of the complete business model (28%), showing a shift to a more digital-focused approach.

The second-year IONOS has conducted research into SME digitalisation, one area of growth in the UK highlighted is the increase in SMEs offering products via an online shop, with this jumping from 22% in 2021 to 33% in 2022.

“Many small and medium-sized businesses have finally realised that digitalisation secures their future viability,” says Achim Weiß, CEO of IONOS. “However, the results of the YouGov survey unfortunately also show that there are still drawbacks in the implementation. When budget and lack of time prevent companies from this essential task, simple, unbureaucratic help and solutions are needed!”

Looking at wider business investment areas for SMEs, nearly seven in ten (68%) rate sustainability and environmental protection for their company as important and over half (53%) stated sustainable suppliers as key – something that will be considered when choosing technology suppliers too.

Exploring the views on sustainability in more detail, 38% found certification and seal of approval for sustainable products or companies as important for sustainability in the company. When exploring obstacles to becoming more sustainable though, financial resources (32%) and knowledge and skills (22%) came out as the top issues.

By James Cook

Source: Business Leader

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Unsecured Business Loan Case Study

The Client:

A client had a requirement for some business finance. The money was to be used for Working Capital and for Business Expansion. They wanted to raise between £10,000 – £15,000 and needed the funds urgently.

The Scenario:

Unsecured Business Loans still tend to be a niche product and remains a higher risk product for the Lenders. As a result, it is a limited market and clients do not have as many options available to them as a standard secured lending product like a mortgage.

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After the pandemic, most Lenders have been extremely cautious and want to ensure that they are supporting business whilst still lending money responsibly. This also means that the liquidity in this market is less as compared to pre-pandemic levels.

This is where we come in as a Specialist Commercial Finance Broker. We understand our Lending Partner requirements and ensure that we meet our clients’ requirements to them. As an example, a business may be looking for a Business Loan for equipment or for a machinery purchase. A standard / traditional Business Loan may be too expensive for the business, but we would look at offering them an asset finance facility in this instance. This gives the customer the equipment they need and essentially the Lender the security they require.

The Solution:

As a result, with this client, we identified that the client had a high turnover business. For businesses such as off-licences, corner shops, newsagents etc, the turnover tends to be high. Therefore, we were able to arrange a £12,500 turnover-based loan which was to be repaid in a mid – short term period.

This was good for the client as they wouldn’t have to be drawn out into long winded finance and using the power of their turnover, they will be able to repay the loan in 5 months. The client was also delighted as they received the funds in 24 hours of their initial enquiry to us. Our role was key in being able to work to the clients’ requirements and pace. There are multiple other options we would have been able to explore with business in a different position.


Both Secured and Unsecured Business Loans are accessible to businesses of all shapes and sizes – working with a Business Loan Broker like ourselves we will search the whole market for you to find the best Lender and Rates for your particular business. Additionally, we shall present the loan application to the Lenders in the format and language they wish to see, which in doing so, will significantly improve your chances of being approved for a Business Loan.

For full details on the types of Business Loans available please visit our Business Loans page.

To know more and speak to one of our Business Finance Brokers for a FREE Quotation and Advice, call us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Business Finance Brokers will get back to you straight away.

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SME lending hits £4.8bn in Q1 – UK Finance

Gross lending to SMEs stood at £4.8bn in the final quarter of 2022, according to data published by UK Finance.

The data, released as part of the latest Business Finance Review, found that the figure for Q4 was broadly unchanged from previous quarter and totalled £22.6bn for the whole of 2021.

Applications for new loans and overdrafts stabilised in the final quarter of the year.

Invoice finance and asset-based lending advances increased by five per cent on the quarter.

The value of repayments edged down on the quarter but remain above pre-pandemic levels and were 38 per cent higher in 2021, compared with the previous year.

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Stephen Pegge, managing director of commercial finance at UK Finance, said: “2021 was another rollercoaster year for SMEs, right to the end. Encouragingly, we have seen the economy recover back to pre-pandemic levels, though some sectors still have a way to go to close the gap.

“Despite the ups and downs of the past year, SMEs’ approach to financial management has been steady. Demand for additional loan finance has stabilised closer to levels seen prior to the pandemic and the value of new lending held up in the final months of 2021. There are signs that alternative forms of finance, such as invoice finance and asset-based lending, have turned a corner in terms of increased demand.

“A good degree of financial flexibility remains. SMEs continue to be able to draw on significant accumulated deposits and have access to unutilised arranged facilities, such as overdrafts, invoice finance and asset-based lending. Meanwhile repayment of the additional finance accessed during the pandemic continues.

“While SMEs will be hoping for more stability this year, a number of challenges will linger, and the finance industry is conscious that these can affect sectors differently. Finance solutions are there for SMEs looking to restart investment plans, boost their working capital or fill a gap if the recovery hits another bump in the road.”

By Stephen Farrell

Source: Insider Media

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Levelling the playing field for small businesses

Scotland’s smaller businesses continue to face a range of challenges amid the ongoing pandemic, but as the mood shifted towards recovery last year, we saw a notable upturn in the demand for finance. Equity investment, in particular, provided companies in Scotland with a platform for growth and development.

According to new data, published by the British Business Bank in its eighth annual Small Business Finance Markets report, equity investment in Scotland’s vibrant community of smaller businesses had soared to £403 million by the end of September – more than double the same period in 2020. A total of 147 equity deals were recorded, equating to 8 per cent of the UK’s equity deal activity – higher than Scotland’s 6 per cent share of the business population.

Across the rest of the UK, there was a similar increase in equity investment, with overall equity deal values on track to double from the £8.8 billion total seen in 2020. By quarter three, Scottish investment was already 42 per cent ahead of the total £283m registered during the full 12 months of 2020.

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Despite the positives here north of the border, our research highlights that geographic imbalances remain across the UK with external finance concentrated in London, where firms attracted 70 per cent of 2021 Q1-Q3 investment value. This only underlines the importance of ensuring that smaller businesses at any stage of growth can access the funding they need to achieve their goals, regardless of their location.

Helping to address this, alongside a range of programmes already in place, the UK Government announced £150m to provide a new fund for Scottish businesses as part of the October 2021 Spending Review. It will be administered by the British Business Bank and we will be working closely with Scottish Enterprise, the Scottish National Investment Bank and other local stakeholders to deliver this increased support.

As well as the increase in equity deals, the study also showed us that bank lending is close to returning to pre-pandemic levels. In terms of post-pandemic recovery, the British Business Bank’s report suggests there could be continued economic recovery throughout 2022, with strong demand expected for investment to fuel business growth. Although 2022 may still provide a challenging environment for some businesses, many others report that they are seeking to pivot towards growth, improve productivity and transition to a net zero economy.

Providing access to finance will play a big part in ensuring the UK economy continues to grow sustainably, but there are also a number of factors we need to consider that might prevent certain individuals or groups in society from being able to access funding. For example, that the report reveals that while ethnic minority-led businesses are more open to using finance, and more ambitious for business growth, access to finance remains an issue, and they are twice as likely to see access to finance as an obstacle to running their businesses. Additionally, the appetite for using external finance among female entrepreneurs has significantly increased, but it remains lower than for smaller businesses run by men.

The need to level the playing field, both in geographical terms and across under-represented groups is clear. We are committed to supporting entrepreneurs to overcome any hurdles they might face, whether it is knowing how to apply for finance, understanding what types of finance are available to them, or supporting them with the applications process.

For some, 2022 may be another challenging period for their businesses. However, we know that many are tentatively optimistic, still targeting growth and have big plans to make their ambitions a reality after two very uncertain years. Improving access to finance can only help smaller businesses to get there and our aim for this year is to help them on that journey.

By Mark Sterritt

Source: The Scotsman