Business funding options explained: what each one is actually for

"I need funding" is where most business finance conversations start. It's rarely where the useful part is. The useful part is what for, because the right product for a cash-flow gap is the wrong product for a new truck, and the wrong product costs more and fits worse.

Here's a plain-English tour of the main options and the jobs they're built for.

Overdraft or line of credit

Built for: short-term cash-flow gaps — the fortnight between paying wages and a big invoice being settled.

A facility you can draw on up to a limit, paying interest only on what you use. Flexible, and useful as a buffer. Not designed to fund a long-term purchase; using it that way tends to leave the buffer permanently used up.

Term loan

Built for: a defined, one-off need with a clear payback horizon — a fit-out, a new location, buying out a partner, a large stock order.

A lump sum repaid over a set period. Secured term loans (usually against property) generally come with longer terms and lower cost; unsecured term loans are faster and don't need property, with pricing and terms that reflect that.

Equipment and asset finance

Built for: vehicles, machinery, tools and technology — anything with a resale value.

The asset itself typically secures the loan, which is why this is often available to businesses that couldn't get an unsecured loan of the same size. Structures include chattel mortgages, leases and hire purchase; they differ in who owns the asset during the term and how it's treated for tax, which is a conversation for your accountant as much as your broker. There's more on our equipment finance page.

Invoice finance

Built for: businesses that invoice other businesses and wait a long time to be paid.

You draw against the value of unpaid invoices, then repay when the customer settles. It smooths lumpy cash flow without adding a fixed repayment. It suits some industries very well (labour hire, transport, wholesale) and others not at all.

Working capital loans

Built for: growth that's running ahead of cash — a contract that needs staff before it pays, seasonal stock, a marketing push.

Often unsecured, often quick to arrange, generally shorter in term. The speed and simplicity are the point; the trade-off is usually cost. Sensible for a specific, time-limited need; less sensible as a permanent fixture.

Commercial property loans

Built for: buying the premises you operate from, or investing in commercial property.

Longer terms, larger amounts, and an assessment that looks at both the business and the property. Owning your premises can turn rent into equity — our commercial finance page walks through what's involved.

How to choose

Three questions sort most situations quickly:

1. What exactly is the money for? A thing with resale value points to asset finance; a timing gap points to an overdraft or invoice finance; a defined project points to a term loan.
2. How will it be paid back, and from what? Match the repayment term to the useful life of whatever you're funding.
3. What can be offered as security, and what would you rather not put up? Secured options usually cost less; unsecured ones protect your assets. Both are legitimate choices.

A broker's value here is knowing which lenders are genuinely active in each of these products for a business like yours, and structuring the application so it's assessed on the right basis. If you're weighing up options, the business funding checker gives us enough to have a useful first conversation.