HMRC has brought in an extra £13 million from tax debtors in recent months, and in almost every case it didn’t take a penny by force. The warning alone was enough.

If your business is carrying a tax bill it’s struggling to clear, there’s a calmer way through than emptying your account: refinancing. Spreading the cost, through tax funding or refinancing what you already owe, keeps the cash in your business, and you in control.

What “direct recovery” actually means

Direct Recovery of Debts (DRD) lets HMRC take money it’s owed straight from your bank, building society or cash ISA accounts, without a court order, if you’ve repeatedly ignored demands to pay. It isn’t a free-for-all, though. HMRC can only use DRD if:

• You owe at least £1,000 in tax or overpaid tax credits
• It has given you a formal 30 days’ notice first
• The time limit for appeals has passed
• It leaves at least £5,000 across your accounts afterwards
• You’ve had repeated demands and can afford to pay but haven’t

 

What happens if you keep ignoring HMRC

Direct recovery doesn’t come out of nowhere. It sits near the end of a process that starts with a bill, then reminders, then more formal demands. Keep ignoring those and HMRC has several ways to escalate, and dipping into your account is only one of them.

It can pass the debt to an enforcement agent, who can visit your premises and take control of goods. It can take you to the County Court for a judgment, which then shows on your credit file. For a limited company that owes enough, it can even start winding-up proceedings. None of that happens overnight, and HMRC would far rather you simply paid or agreed a plan. But the longer a debt sits, the more options it has, and the more

 

Not everyone thinks it’s fair

It hasn’t gone down well with everyone. As reported by The Telegraph, tax experts have warned the threat of a raid could pressure people into paying bills they might legitimately dispute. One called it “a blunt sword”; another questioned whether it’s sensible when businesses already carry a heavier tax burden.

 

Why “just pay it” can cause a bigger problem

When a tax bill lands, the instinct is to clear it from the business account and move on. For many businesses, that quietly creates a worse problem. A large payment leaves the account, working capital is suddenly tight, payroll feels riskier, and plans to invest get shelved. Then the next quarter’s bill rolls around and the squeeze starts again.

 

Can you refinance to pay a tax bill?

From our brokers: Yes, and it’s something we do a lot. At Greenwood Capital, funding tax bills is one of the most common reasons business owners get in touch, often after their bank has stalled or said no. We’ve helped thousands of UK businesses access funding across a panel of more than 70 lenders.

Refinancing means restructuring your borrowing so a cost is spread over time instead of landing in one lump. Applied to a tax bill, it usually takes one of three shapes.

 

Tax and VAT funding

A short-term facility built specifically for tax bills. The lender settles the amount with HMRC and you repay in fixed monthly instalments, usually over three to twelve months. It suits businesses that can comfortably cover a monthly payment but can’t afford to lose the lump sum in one go, and it keeps you compliant from day one. VAT and corporation tax bills are the most common reasons people use it.

 

Refinancing existing debt

If you’re already carrying a loan, or juggling several facilities at once, rolling them into one better-structured agreement can lower your monthly outgoings and free up the room to cover the tax bill. It tends to work best when your current borrowing is on poor terms or scattered across different lenders. The goal is a single, manageable payment rather than several competing ones.

 

Asset refinance

If your business owns vehicles, machinery or equipment outright, asset refinance lets you release some of that value as cash. You raise funds against kit you already have, then repay over an agreed term. It’s a useful route for asset-heavy businesses, like those in construction, manufacturing or transport, that have capital tied up in equipment rather than sitting in the bank.

 

Time to Pay or refinancing: which is right?

Before anything else, it’s worth knowing HMRC has its own instalment option. A Time to Pay arrangement lets you spread a bill directly with HMRC, usually over up to 12 months and occasionally longer. There’s no lender involved, and it’s often the first thing to explore.

So when does funding make more sense? A few common situations:

• HMRC has declined a Time to Pay arrangement, or the terms it offered are tighter than you can manage.
• You’d rather keep things clean with HMRC and settle the bill in full now.
• You want a fixed, predictable arrangement that won’t be reviewed or withdrawn.
• You’re already part-way through a Time to Pay plan and another bill has landed.

Neither is automatically the right choice. Time to Pay still accrues HMRC’s late-payment interest, but there’s no lender margin on top, so it’s usually cheaper. The trade-off is that it’s at HMRC’s discretion and can be pulled if you miss a payment. Funding costs more, but it settles the bill straight away and gives you certainty. The best fit depends on your cashflow and how much breathing room you actually need.

 

What to do if a tax bill is worrying you

1. Don’t ignore the letters. Engaging early keeps every option open, including a Time to Pay arrangement directly with HMRC.
2. Map the real cashflow impact over your next two or three months.
3. Speak to your accountant about the tax position itself.
4. Talk to a broker about funding it without draining your reserves. A soft search means exploring your options won’t touch your credit file.

 

Refinancing a business loan means replacing your existing loan with a new one on better terms. The new lender settles the old debt directly, and you carry on with the new agreement. Most businesses refinance to lower their interest rate, reduce monthly repayments, consolidate several facilities into one, or release capital tied up in an asset.

With the Bank of England base rate now at 3.75%, down from a 2023 peak of 5.25%, business refinancing has become a more active question for UK SMEs. A loan taken in 2023 may sit at a very different rate to what’s available today.

The maths only works if the saving beats the cost of switching. Early repayment charges, arrangement fees, and any new security requirements all eat into the gain. Late in the term of an existing loan, or where your trading has weakened, refinancing can leave you worse off.

Most business owners only think about refinancing when something prompts it. Usually it’s a rate change, a balloon payment coming up, or a sense that the loan no longer fits the business. If that’s where you are, the next few sections should help.

When does refinancing a business loan become the right option?

The majority of businesses refinance for one of five reasons. Some come down to changes in the market, others to changes in the business, and a few to the way the original loan was structured. The scenarios below should help you work out where your situation fits.

Rates have dropped since you borrowed

If you took out a loan when the Bank Rate was at its 5.25% peak in 2023, you’re likely sitting on a higher rate than what lenders are offering today. Because lenders price off Bank Rate, and Bank Rate has come down to 3.75%, the gap between your current cost of borrowing and what’s available in the market may be wider than you think. Over the remaining term of a larger loan, even a reduction of one or two percentage points can translate into thousands of pounds.

Your business is stronger than it was

The loan you qualified for two years ago reflects the business you were then, not the business you are now. If you’ve grown your turnover, built up a longer trading history, or strengthened your balance sheet, the range of lenders willing to back you has widened considerably. That usually means better rates, longer terms, and more flexibility on covenants. The loan you’ve been paying off probably hasn’t kept pace with the progress you’ve made.

You’re managing several facilities at once

Businesses often end up with a patchwork of borrowing built up over time, perhaps a loan from one lender, an asset finance agreement from another, and a merchant cash advance taken on for a short-term need that’s since become routine. Each facility comes with its own payment date, its own rate, and its own administration. Consolidating everything into a single new loan can reduce the total monthly cost and simplify your cash flow. Done well, it also gives you a clearer picture of what your business owes.

There’s a balloon payment coming

Some loans, particularly older asset finance agreements, are structured so that a large lump sum falls due at the end of the term. If that payment is on the horizon and paying it outright would put pressure on the business, refinancing the outstanding balance into a new facility spreads the cost over a longer period. The earlier you start the conversation, ideally several months before the payment is due, the more options you’ll have.

The loan no longer fits the business

The facility that was sensible when you took it out can drift out of alignment with the business over time. You might have taken an unsecured business loan to buy a piece of machinery because asset finance wasn’t available to you then, but now it is, and the asset itself could be securing a cheaper rate. Or the term might be too short, leaving monthly repayments that squeeze cash flow harder than they need to. Refinancing into a product that better matches the size, term, and security profile of what you’re funding can ease that pressure without changing how much you’ve borrowed.

How to refinance a business loan, step by step

The mechanics of a refinance are the same as any business loan application. The work that affects your outcome happens before you submit it.

1. Review your existing loan agreement

Start by pulling out the original paperwork and working out where you stand. You’re looking for your outstanding balance, how much time is left on the term, and your current rate.You also want to know the size of any early repayment charge (ERC) if you settle before the term ends. The ERC is the one most borrowers underestimate. Lenders calculate it in different ways. Some apply a flat percentage of the remaining balance, others use a sliding scale that reduces the closer you get to the end of the term, and a few have no ERC at all. The figure you want at the end of this step is the total settlement amount, including the ERC, because that’s the number your new loan will need to cover.

2. Decide what you want the refinance to achieve

It sounds obvious, but being clear on the goal shapes every decision that follows. If your priority is lowering the monthly payment, a longer term with a slightly lower rate will usually get you there. If your priority is reducing the total cost of the borrowing, a shorter term with a lower rate works better, even if the monthly payment doesn’t move much. If you’re consolidating several facilities into one, the focus shifts to the blended cost and the simplification of having a single monthly payment date. Without that clarity going in, it’s easy to end up comparing offers on the wrong basis.

3. Get your paperwork together

Lenders ask for broadly the same documents regardless of which one you approach. Most refinance applications need:

• Three to six months of business bank statements
• Your most recent filed accounts, plus up-to-date management accounts if your filed accounts are more than a few months old
• A debt schedule listing the balance, rate, and monthly payment on any existing facilities
• Proof of ID and basic company information

Having all of this ready before you start applying is the single biggest factor in how quickly the process moves. The lenders we work with consistently move faster on cases that arrive with the paperwork already in order.

4. Compare options across the market

You can approach lenders directly, one at a time, or use a broker to compare options across a panel of lenders in a single conversation. The direct route gives you full control, but each lender may run a credit search as part of their application process, and several searches in a short period can affect your score. It also takes longer, because you’re starting from scratch with each lender’s process.

The broker route works differently. At Greenwood Capital, for example, we run soft searches across our panel of more than 100 lenders to shortlist the ones most likely to approve your case, and only submit a formal application to the lender you decide to proceed with. That keeps the credit footprint small and means you’re comparing real, eligibility-checked options rather than headline rates that may not be available to you. For a refinance specifically, where you’re already weighing up the cost of switching against the saving, having a clear picture of what’s on offer matters more than usual.

5. Submit the application

Once you’ve chosen a lender, the application is submitted along with the paperwork from step three. Timelines vary by product. An unsecured loan can be approved in a day or two and funded within the week. Asset finance moves quickly too, and a deal can be approved and funded within the same day when all parties move at pace.

Property-secured facilities like commercial mortgages and bridging take longer because the lender has to complete valuations and legal work, and four to six weeks is a realistic window for those. During this stage, the lender runs underwriting checks, including a soft credit search. A hard credit search is only carried out at the point you accept their offer.

6. Drawdown and settle the existing loan

Once the loan is approved and the agreement is signed, the funds are released. In most cases the new lender settles your existing loan directly rather than transferring the money to you, which removes the risk of any timing gap between the old facility closing and the new one starting. Your previous repayment schedule ends, your new one begins, and any security held against the original loan is either released or transferred across to the new agreement.

Alternatives to refinancing your business loan

Refinancing isn’t always the best route, even when there’s a clear cost saving on paper. If the early repayment charge is high, the remaining term is short, or you only need a small amount of extra cash, a different product can often do the job with less friction. The table below shows the alternatives we see come up most often, and where each one tends to fit better than refinancing.

Alternative	Best for	What can help
Top-up on existing loan	Extra funds when your current loan is performing well and you want to avoid an early repayment	Unsecured business loans
Second loan alongside	Borrowing more without disturbing a competitive rate on the existing facility	Unsecured business loans
Asset refinance	Releasing capital tied up in vehicles, machinery or equipment you already own	Asset finance
Invoice finance	Cash flow pressure from unpaid invoices rather than the cost of the existing loan	Invoice finance
Merchant cash advance	Short-term, revenue-linked funding for businesses that take a lot of card payments	Merchant cash advance

Refinancing tends to win when the priority is a lower rate on the same borrowing. Where the priority is extra cash or easier cash flow, one of the alternatives above usually gets you there with less effort.

Most business owners have a default when their tax bill arrives. They pay it in full, clear the obligation with HMRC, and move on to the next thing. It’s the responsible-feeling option, and for some businesses it’s the right one. For plenty of others, it quietly takes a chunk of working capital out of the business at the worst possible time.

A £40,000 corporation tax bill leaves your account in a single transfer. The cash gap it creates can last another two or three months. During that time, payroll feels tighter, supplier payments get watched more closely, and decisions about hiring or stock get pushed back. Then the next VAT quarter lands, or next year’s corporation tax bill comes round, and the cycle starts again.

You don’t have to pay a tax bill in one go. A corporation tax payment plan or a tax loan lets you spread the cost over six to twelve months. The lender pays HMRC on your behalf, you repay in fixed monthly instalments, and the cash stays in the business. For a fee, you keep the working capital free to do something more useful.

This guide covers when paying your tax bill in full is the right call, when spreading it makes more sense, what tax funding costs, and how to decide between the options.

How does tax funding work?

Tax funding is a short-term business loan that covers your VAT, corporation tax, or PAYE bill, repaid in fixed monthly instalments over six to twelve months. The lender pays HMRC directly on your behalf. You then repay the lender, with interest, while keeping the cash in the business.

It’s a different product to an HMRC payment plan, which we cover later in this guide. With tax funding, you stay fully compliant with HMRC from day one. The bill is treated as paid the moment the lender settles it, and there’s no late payment interest, no flag on your tax record, and no Time to Pay arrangement to negotiate.

Loans typically range from £5,000 to £500,000, depending on the size of the bill and the lender. Most are unsecured loans and approved within a few days. For larger amounts (usually over £150,000), some lenders ask for a personal guarantee.

For example: a £40,000 corporation tax bill funded over 12 months at around 9% APR works out at roughly £3,500 a month, with total interest of about £2,000 across the full term. The lender pays HMRC the £40,000 on your behalf the day the bill is due. Your business keeps the £40,000 of working capital available for the next year, and repays the loan in twelve fixed instalments.

Tax funding is most commonly used for VAT (due quarterly) and corporation tax (due nine months and one day after your year-end), but PAYE bills can be funded the same way. Some lenders will also reimburse a tax bill you’ve already paid, as long as it cleared your account in the last 30 to 45 days.

Tip: If you’d like to see what spreading a tax bill could look like for your business, our business loan calculator can help you estimate monthly repayments.

The hidden cost of paying a tax bill in full

Paying a tax bill in full has a cost most owners never put a number on. It’s what the cash would have done over the next few months if it had stayed in the business.

Take the £40,000 corporation tax bill from earlier. Once it’s paid, the £40,000 is gone, but the business still has the same payroll, the same supplier payments, and the same overheads to cover. Cash that would have funded a new hire, a stock order, or simply a comfortable buffer is now sitting with HMRC. Most owners feel this for the next eight to twelve weeks. Payroll gets watched more closely, supplier payments slow down, and the conversations about hiring or new equipment quietly get pushed to next quarter.

If that £40,000 would have funded something with a return – a new salesperson billing £8,000 a month in net new revenue, a stock order that turns over twice in the quarter, or a discount for paying a key supplier 30 days early – the lost return is what the bill really costs you. Tax funding at 9% over twelve months costs around £2,000 in interest. If the cash would have generated more than £2,000 of value over the same period, paying in full is the more expensive option.

The other thing that gets missed is the cycle. VAT bills land every three months. Corporation tax lands every twelve. PAYE every month. For a lot of SMEs, by the time working capital has rebuilt after one bill, the next is already on the way. The recovery never quite finishes.

Businesses that fund their VAT every quarter aren’t necessarily struggling. Often they’ve worked out that keeping the cash in the business and paying a fee for the privilege is more profitable than the alternative.

Read next: What is VAT finance and how does it work?

When does paying in full make sense, and when doesn’t it?

Paying your tax bill in full is the right call when the cash isn’t doing anything more useful elsewhere. If you’re sitting on healthy reserves, the bill is small relative to your monthly turnover, and there’s no growth investment, hire, or stock order queued up that the cash would unlock, the simplest option is usually the best one. There’s nothing to repay, no interest to factor in, and no application to make.

Tax funding is the better option when the cash has somewhere better to be. A business turning over £200,000 a month with a £40,000 corporation tax bill is paying around 9% in interest to keep the cash for twelve months. If that £40,000 funds a hire, a stock cycle, or a contract that returns more than the financing cost, spreading the bill leaves the business better off. The bigger the bill is relative to monthly turnover, and the more clearly the cash has a job to do, the stronger the case becomes.

HMRC’s Time to Pay arrangement is the third option, and it’s the one most owners think of first.

Time to Pay lets you spread an unpaid tax bill over a period agreed with HMRC, usually six to twelve months. It keeps you out of formal recovery action, but it’s not free. HMRC charges late payment interest at 7.75% (from 9 January 2026, set at the Bank of England base rate plus 4%) for the entire period the bill is outstanding. The arrangement is recorded against your account, which can affect future credit decisions, and it’s negotiated case by case rather than approved on standard terms.

Tax funding sits between paying in full and Time to Pay. The bill is treated as paid the moment the lender settles it with HMRC, so there’s no late payment interest, no penalty risk, and nothing flagged on your tax record. Rates from commercial lenders typically sit around 6% to 12% APR, often below HMRC’s 7.75%, and approval is faster than negotiating a Time to Pay.

Comparing your options

Option	What it costs	How quickly you can arrange it	Effect on your HMRC record	Best for
Pay in full	Nothing on top of the bill	Immediate	None	Surplus cash, small bill relative to turnover, no better use for the money
Tax funding	~6% to 12% APR over 6 to 12 months	A few days	None – bill treated as paid	Cash has a clear job to do, regular VAT or corp tax cycles, growth plans in motion
HMRC Time to Pay	7.75% late payment interest, plus penalty risk if not arranged before deadline	1 to 4 weeks	Recorded against your account	Genuine short-term inability to pay, no commercial finance available
Business overdraft	Variable rates, often 8% to 15%	Already in place, or 1 to 2 weeks to set up	None	Short bridge of a few weeks, not a full bill

Which option fits depends on the size of the bill, how the cash would be used, and what your overall funding picture looks like. For one-off bills with surplus cash, paying in full is fine. For recurring VAT or corporation tax cycles where the cash has a clear job to do, tax funding usually works out cheaper than the alternatives. Time to Pay is best treated as a fallback rather than a first move, because of the cost and the record it leaves.

How we approach tax funding at Greenwood

Greenwood Capital is a commercial finance broker. We work with a panel of specialist tax funding lenders and match each client to the right option based on the size of the bill, the trading position of the business, and what’s needed by when.

Most tax funding deals we arrange are unsecured. For loans under £150,000, lenders typically don’t require a personal guarantee. Above that, terms vary by lender and case. Approval usually takes a few days from receiving the documents, and lenders can lock in a deal up to 30 days before the deadline for VAT and 45 days before for corporation tax. Booking earlier in the cycle gives you more lender options and avoids the rush around month-end.

To put a proposal together, we usually need your latest filed accounts, three months of business bank statements, management information dated within the last three months (P&L and balance sheet), and proof of the tax liability, such as a VAT return or corporation tax computation. If a Time to Pay arrangement is already in place and being kept to, that doesn’t rule out tax funding, but we’ll need the full details.

If you’ve already paid a corporation tax or VAT bill in the last 30 to 45 days, some lenders will reimburse it. The cash comes back into the business and you repay the lender over the agreed term. It’s an option that’s easy to miss, and a useful one if you’ve recently paid a bill that’s left cashflow tighter than expected.

Getting approved for business finance with bad credit comes down to more than your score. Lenders weigh cash flow, trading history, the purpose of the funding, and whether past credit issues are recent or resolved. Get these right and you’re in a strong position. Get them wrong and you risk burning an application you didn’t need to lose.

If you’ve been turned down by your bank, or you’re expecting to be, you’re not alone. Maybe there’s a CCJ on your file from a few years ago, or a director with personal credit issues that keeps following the business into every application. You need funding, but you’re not sure whether anyone will say yes or whether applying will make things worse. This guide is for you.

It covers what we’ve learned from arranging over £100 million in business finance for UK SMEs, many of them with imperfect credit files. If you’re still working out whether funding is realistic, start with our guide on getting a business loan with bad credit. This one picks up from there.

What lenders weigh up when your credit is poor

Most people assume their credit score is the main reason they’ll be approved or declined. In practice, it’s one input among several, and for many specialist lenders it’s not even the most important one. The question they’re trying to answer is simple: can this business afford to repay? Your credit file is part of that picture, but your bank statements, your trading history, what the money is for, and how the application is presented can all carry more weight.

Cash flow and bank statements

Your bank statements carry serious weight in any business finance application. Lenders will ask for three to six months of them, and they go through them line by line. They want to see money coming in regularly, a stable balance, no returned direct debits, and enough breathing room to cover repayments on top of your normal running costs.

What catches people out is the detail. A business turning over £30,000 a month with steady income is a very different prospect to one doing the same amount in two or three large spikes. An underwriter will also notice things like frequent use of an unarranged overdraft, payments bouncing, or HMRC debts being collected by direct debit. Even when the headline numbers look fine, those details can change the conversation.

Trading history

Most lenders want to see at least six to twelve months of trading, and longer gives them more to work with. But the trajectory matters as much as the length. Twelve months of steady or growing revenue will carry a business further in an application than three years of decline.

One thing we see regularly is newer businesses assuming they have “bad credit” when what they have is very little credit history at all. Those are two different problems. A thin file means the lender doesn’t have much to go on. A damaged file, with CCJs, defaults, or missed payments, means there’s evidence of past problems. Some lenders won’t touch either. Others specialise in one or the other. Getting that distinction right before you apply saves time and avoids wasting hard credit searches on lenders whose criteria you were never going to meet.

What the funding is for

Lenders care about what the money is for, and most applicants underestimate how much it matters. Some purposes are far easier to fund than others.

An application to buy a specific piece of equipment or fulfil a confirmed contract is a straightforward conversation for an underwriter. The money goes in, it generates or protects revenue, and there’s a clear path to repayment. An application that just says “working capital” is much harder to approve, because the lender has no way of knowing whether the money will solve a problem or delay one.

Be specific when you apply. “I need £40,000 to buy a CNC machine that will let us take on a contract worth £120,000” is a fundable request. “I need some working capital” gives the lender very little to work with.

Security and personal guarantees

If you can offer security against the borrowing, whether that’s commercial property, equipment, or vehicles, it gives the lender something to fall back on if things go wrong. That reduces their risk, which means they can be more flexible on credit history. It’s one of the reasons asset finance and secured business loans are often easier to access than unsecured lending when your credit file has issues.

Most lenders will also ask whether you’re willing to provide a personal guarantee. A lot of applicants agree to this without fully thinking it through, because it feels like the only way to get the deal done. But a personal guarantee means you’re personally liable if the business can’t repay.

Your home, your savings, your personal finances are on the line. If you’re not confident the business can comfortably keep up with the repayments over the full term, it’s better to look at a smaller amount, a different product, or to hold off until the position is stronger.

How recent your credit issues are

The age of your credit issues matters as much as the issues themselves when you’re applying for business finance. A satisfied CCJ from several years ago with clean conduct since is a completely different situation to an unpaid one from six months ago. Lenders care about the timing, whether the issue has been resolved, and what your financial behaviour has looked like since.

Generally, the older and more settled the issue, the more options open up. A satisfied CCJ with a few years of clean conduct behind it won’t stop most specialist lenders from considering your application. A recent or outstanding one narrows the field considerably, and you’ll typically need strong bank statements, a clear purpose for the funding, and some form of security to get an approval across the line. Every lender draws the line in a slightly different place, which is one of the reasons working with a broker who knows the criteria across the market can save you from applying in the wrong place.

IVAs are treated more seriously. Some lenders won’t consider a business loan application at all while an IVA is active, though others will look at the broader picture if the arrangement is nearing completion and the business is trading well. If you’re in an IVA and need funding, we’d recommend getting specialist advice before you apply rather than testing the water yourself and picking up hard searches in the process.

If your credit issues are recent and unresolved, it may be worth considering types of finance that rely less on your credit history. We cover those in the next section.

How to strengthen a bad credit business finance application

Most bad credit business loan applications that get declined aren’t declined because of the credit file alone. They’re declined because the rest of the application didn’t do enough to offset it. The difference between an approval and a decline is often down to preparation, and most of it can be done in the weeks before you apply.

Clean up your credit file before a lender sees it

Both your personal and business credit reports can contain mistakes, from old addresses and debts that were paid off but never marked as satisfied, to accounts you don’t recognise. Any of these can drag your score down for no reason.

Check your personal file through Experian or Equifax (both offer free access), and your business credit report through Experian’s My Business Profile. The headline score is useful, but the full report is where problems hide. It’s not uncommon for a director’s previous address to still be linked to an old default that was paid off years ago. The score looks fine on a free app, but the full file tells a different story. If something is wrong, dispute it with the agency before you apply. It takes time to correct, so don’t leave it until the last minute.

Get your bank statements in shape early

Lenders will ask for three to six months of business bank statements, and they read them line by line. If you know you’re going to apply for funding in the next few months, start treating your bank account like it’s already under review.

That means avoiding unnecessary overdraft use, making sure direct debits don’t bounce, and keeping the balance in a healthy position where you can. If you’ve had a rough patch recently, even two or three clean months can shift how a lender reads your file. Often the difference between a no and a yes is a few weeks of tidier banking.

Be upfront about your credit history

If you have a CCJ, an IVA, or a history of missed payments, the lender is going to find out. Trying to hide it wastes everyone’s time and damages trust with the underwriter.

Address it head-on. A short, factual explanation of what happened and what’s changed since is far more effective than leaving the lender to draw their own conclusions. Something like: “The CCJ was registered in 2022 following a dispute with a supplier. It was satisfied in full in 2023 and we’ve had no further issues since.” That’s the kind of context that turns a red flag into a conversation.

Avoid applying to too many lenders at once

Every full application triggers a hard credit search, and each one shows up on your file. If a lender sees four or five recent searches from other lenders, it looks like you’ve been turned down repeatedly. That makes an already difficult application harder.

Look for lenders or brokers who offer a soft credit check at the eligibility stage, so you can see where you stand without leaving a mark. At Greenwood Capital, initial enquiries don’t affect your credit score, which means you can explore your options before committing to a full application.

Match the finance type to your situation

Not every type of business finance weighs credit history the same way. If your score is the main barrier, applying for an unsecured high street loan is likely to end in a decline. But products like asset finance, invoice finance, and merchant cash advances are structured differently, and for some businesses they offer a more realistic route to funding. We go into each of these in the next section.

Types of business finance that are easier to access with bad credit

If your credit history is the main thing holding back your application, not all business finance is assessed the same way. Some products are structured so the lender’s primary security comes from somewhere other than your credit file. Which one fits best depends on your business, what assets you have, and how your income comes in.

The table below gives a quick comparison. We go into more detail on each one underneath.

Product	How the lender is secured	Best suited for	Credit history importance
Asset finance / hire purchase	The equipment itself acts as security	Businesses buying or upgrading vehicles, machinery, or specialist equipment	Lower – the asset value matters more
Invoice finance	Your unpaid invoices act as security	B2B businesses with reliable customers on 30, 60, or 90-day payment terms	Lower – your customers’ creditworthiness matters more
Merchant cash advance	Repaid from future card sales	Retail, hospitality, and businesses with consistent card payment volumes	Lower – your card transaction history matters more
Secured business loan	A charge over property or high-value assets	Businesses that own property or valuable assets and need to borrow a larger amount	Lower – the asset value and equity matter more

Asset finance and hire purchase

With asset finance and hire purchase, the equipment you’re funding acts as security for the agreement. Because the lender can recover the asset if repayments aren’t maintained, they’re less reliant on your credit history when making a decision. If the asset generates or supports revenue, the application is even more straightforward.

This option is tied to a specific asset, so it won’t work if what you need is general working capital. For a fuller explanation, see our guide to what asset finance is and how it works.

Invoice finance

Invoice finance is based on the strength of your customers rather than your own credit history. The lender advances a percentage of your unpaid invoices (typically 80% to 90%) and the invoices themselves act as security. If you’re trading well but your credit file doesn’t reflect that, invoice finance lets the quality of your customer base do the work.

It’s not an option for businesses that deal mainly with consumers or take payment upfront, since there are no invoices to finance against. See our guide on what invoice financing is and how it works for a more detailed breakdown.

Merchant cash advances

A merchant cash advance gives you a lump sum upfront, which you repay as a fixed percentage of your daily or weekly card takings. Because the funding is tied to your future card sales rather than your credit history, approval is often more accessible for businesses with bad credit.

The trade-off is cost. MCAs use a factor rate rather than an interest rate, and the total repayment amount is fixed from the outset. They tend to be more expensive than other options, so it’s important to compare the total cost against what you’d pay elsewhere before you commit. If your income comes mainly through bank transfers or cash rather than card payments, this product won’t be available to you.

Secured business loans

A secured business loan lets you borrow against property or high-value equipment your business already owns. The lender takes a charge over the asset, which reduces their exposure and makes them more willing to approve applications where the credit history is poor. For businesses with bad credit that need to borrow larger amounts, this is often the most realistic route.

If your business can’t keep up with repayments, the lender can repossess the asset. Lower rates and higher borrowing limits come with that risk attached. The process also tends to take longer than unsecured products because the lender will need a valuation before they can make an offer.

If there’s any doubt about whether the business can sustain the repayments over the full term, an unsecured option or a different product is a safer path, even if the rate is higher.

The Growth Guarantee Scheme (GGS) is a UK government-backed lending programme that gives accredited lenders a 70% guarantee on business finance facilities of up to £2 million. It’s run by the British Business Bank, covers everything from term loans to asset finance, and is open to businesses with a turnover of up to £45 million. The borrower remains fully liable for the debt. The guarantee sits with the lender, not you.

Despite supporting nearly £3 billion in lending since July 2024, awareness among business owners is still surprisingly low. Many confuse the scheme with the old Bounce Back Loans. Others assume it’s a government grant. It’s neither. But for businesses that qualify, the GGS can improve the rates and terms you’re offered on a loan you were going to take out anyway.

This guide covers how the scheme works, who’s eligible, what types of finance are available, and what to expect when you apply.

How does the Growth Guarantee Scheme work?

When you apply for business finance through a GGS-accredited lender, the process looks almost identical to any other commercial loan application. You submit your financials, the lender assesses your business, and they make a decision based on their usual criteria.

The difference is what’s happening on the lender’s side. The government, through the British Business Bank, guarantees 70% of the outstanding balance if the borrower defaults. That guarantee gives lenders more confidence to approve applications they might otherwise decline, or to offer better rates than they would without the government-backed guarantee in place.

The guarantee protects the lender, not you. As the borrower, you’re still 100% responsible for repaying the full amount. If you default, the lender will pursue recovery from you first, using their normal process. The government guarantee only kicks in after that, covering 70% of whatever the lender couldn’t recover. You don’t get a discounted loan. You don’t get partial forgiveness. You get a better chance of being approved, and potentially better terms, because the lender is carrying less risk.

For example: Say you run a construction firm and need £250,000 to purchase equipment. You approach a lender, and on a standard commercial basis, they’re not comfortable with the exposure. Maybe your trading history is short, or your sector makes them cautious.

Under the Growth Guarantee Scheme, that same lender knows the government covers 70% of their downside if things go wrong. That might be enough to turn a no into a yes, or to bring the interest rate down from, say, 12% to 9%. You still owe £250,000 either way. But the terms you’re offered could look very different.

That’s the real value of the scheme. It doesn’t change what you owe. It changes what lenders are willing to offer you.

• Note: Lenders are required to offer you a standard commercial facility if they can match or beat the GGS-backed terms without the guarantee. So if your business is strong enough to get a good deal on its own, you’ll get that deal. The GGS exists for the gap between “good business, but the numbers make us nervous” and an outright no.

Who’s eligible for the Growth Guarantee Scheme?

The core criteria are straightforward. Your business needs to:

• Have a turnover of up to £45 million (on a group basis, if part of a group)

• Be carrying out trading activity in the UK

• Generate more than 50% of its income from trading (charities and further education colleges are exempt from this)

• Have a viable business proposition in the lender’s view

• Not be classed as a “business in difficulty”

• Not exceed government subsidy limits

The £45 million turnover ceiling is higher than most people expect. This isn’t a scheme limited to sole traders and micro-enterprises. Businesses turning over £10 million, £20 million, even £40 million still qualify.

If you’ve previously borrowed under the Bounce Back Loan Scheme, CBILS, CLBILS, or the Recovery Loan Scheme, you can still apply. But your previous borrowing may reduce the maximum amount available to you under the GGS.

What does “viable business proposition” mean?

There’s no universal definition. Each lender makes this call based on their own credit criteria. One lender might decline you while another approves you for the same amount. This is why getting turned down once doesn’t mean the scheme isn’t available to you.

The British Business Bank accredits over 70 lenders under the GGS, and their risk appetites vary significantly. If your first application doesn’t go through, we recommend working with a business finance broker like Greenwood Capital who can match you with lenders more likely to say yes.

What does “business in difficulty” mean?

You’ll be considered a business in difficulty if you’re in formal insolvency proceedings: administration, liquidation, a company voluntary arrangement, or an individual voluntary arrangement. Receiverships and restructuring plans under Part 26A of the Companies Act don’t count. If your business is struggling but hasn’t entered a formal process, you may still be eligible.

The subsidy limit that most overlook

The GGS counts as a government subsidy. Not the loan itself, but the benefit you receive from the guarantee. The exact calculation is technical, but broadly it reflects the financial advantage the guarantee provides to you as the borrower.

There’s a cap on total subsidy any business can receive over a rolling three-year period. If you’ve received other government-backed support (grants, previous guaranteed loans, other subsidised programmes), that eats into your allowance. Most small businesses won’t come close to the limit, but if you’ve stacked multiple schemes recently, check before you apply. Your lender will ask you to confirm this during the application.

What can you use the Growth Guarantee Scheme for?

The short answer is any legitimate business purpose. The British Business Bank doesn’t restrict how the funds are used. Working capital, equipment, expansion, hiring, refinancing existing debt, bridging a cashflow gap while you wait on a large invoice. It’s broad by design.

What shapes the detail is the type of finance you apply for. The GGS supports five products, though not every lender offers all of them.

Term loans

A fixed lump sum repaid over an agreed period, typically between three months and six years under the GGS. This is the most common route for businesses that need a specific amount for a defined purpose: buying equipment, funding a fit-out, hiring ahead of a busy period, or consolidating more expensive debt.

Minimum facility size is £25,001. Maximum is £2 million per business group. Interest rates vary between lenders and will depend on your business profile, the amount, and the term length.

Because the GGS reduces the lender’s risk, Growth Guarantee Scheme interest rates can come in lower than a standard commercial loan for the same borrower. How much lower depends on the lender and your circumstances, but the scheme’s terms require that the benefit of the guarantee is passed on to you rather than absorbed by the lender.

Our business loan calculator can help you estimate repayments at different rates.

Asset finance

If the funding is for a specific asset (vehicles, machinery, equipment), asset finance lets you spread the cost over time while the asset itself serves as security. Under the GGS, the minimum facility is £1,000 and terms can run up to six years.

This is popular in construction, manufacturing, transport, and logistics. The GGS guarantee can make the difference for businesses that are viable but don’t have the balance sheet history some lenders want to see before financing a large asset.

Invoice finance

If your cashflow problem is timing rather than revenue, invoice finance releases money tied up in unpaid customer invoices. A provider advances up to 90% of the invoice value upfront, then collects from your customer on normal terms. Under the GGS, invoice finance facilities start from £1,000 with terms of up to three years.

This works well for businesses in recruitment, professional services, or any sector where you’re regularly waiting 30, 60, or 90 days for payment while covering costs now.

Overdrafts

A flexible facility attached to your business bank account. You draw what you need, repay when funds come in, and only pay interest on what you’ve used. Under the GGS, business overdrafts are available from £25,001 with terms up to three years.

Overdrafts suit businesses that experience regular cashflow fluctuation rather than a one-off funding need. Seasonal businesses are a good example. The downside is that they’re repayable on demand and can be reviewed or reduced at short notice, so they’re not a substitute for longer-term finance.

Asset-based lending

This is a broader facility secured against a combination of your business assets: stock, equipment, property, receivables. It’s typically used by larger SMEs that need a more flexible funding structure than a single product can offer. Minimum facility is £1,000 under the GGS, with terms up to three years.

How to apply for the Growth Guarantee Scheme

Most people think there’s a separate GGS application – there isn’t. You don’t go to the British Business Bank’s website and fill in a form. You apply for business finance with an accredited lender in the normal way, and the lender decides whether to use the Growth Guarantee Scheme to back your facility. In practice, that means the process looks like this.

You choose an accredited lender, or work with a broker who can match you with one. You apply for the type of finance you need. The lender runs their standard credit and fraud checks, reviews your financials, and assesses your business. If they can offer you a commercial facility on equal or better terms without the guarantee, they will. If they can’t, and you meet the GGS criteria, they may use the scheme to support your application.

You can mention that you’d like to be considered for GGS-backed finance when you apply, but ultimately the decision sits with the lender. The extra paperwork is minimal. In most cases, it’s a subsidy declaration confirming you haven’t exceeded the government’s rolling three-year limit, plus the standard documentation the lender would ask for anyway.

What lenders typically ask for

The exact requirements vary, but most lenders will want to see the following:

• Recent management accounts or filed accounts
• A business plan or summary of what the funding is for
• Bank statements (usually three to six months)
• Details of existing debts and any previous government-backed borrowing
• Information on directors and significant shareholders
• A signed subsidy declaration

If you’re applying for asset finance, you’ll also need details of the asset you’re purchasing. For invoice finance, lenders will want to see your debtor book.

What makes a stronger application

Lenders under the GGS still apply their normal commercial judgement. The guarantee makes them more willing to lend, but it doesn’t override their risk criteria. A few things can meaningfully improve your chances.

Clean, up-to-date financials matter more than people think. If your management accounts are six months old or your books are messy, some lenders won’t look past that. Getting your numbers current before you apply is one of the simplest things you can do, and one of the most overlooked.

Be specific about what the funding is for. “Working capital” is technically a valid answer, but “we need £150,000 to hire three engineers ahead of a confirmed contract starting in April” gives the lender something concrete to assess. The more clearly you can connect the borrowing to a business outcome, the easier you make the lender’s decision.

If you’ve been declined elsewhere, say so and explain what’s changed or why a different product might be a better fit. Lenders expect this. It’s not a black mark. Over 70 lenders are accredited under the GGS, and they have very different appetites for risk, sector, and deal size. A no from one is not a no from all.

If you’re not sure where to start, that’s what we’re here for. At Greenwood Capital, we work with a panel of 100+ lenders, including GGS-accredited providers. Rather than approaching lenders one by one, you can apply through us and we’ll match you with the ones most likely to approve your application, often within days.

Recent changes to the Growth Guarantee Scheme

The scheme has changed a lot since it launched in July 2024. If you looked into it last year and ruled it out, the picture is different in 2026.

Extended to March 2030

The GGS was originally set to close on 31 March 2026. The 2025 Spending Review extended it through to 31 March 2030, with the government increasing the British Business Bank’s funding by two-thirds. That means the scheme isn’t going anywhere soon. If you’re planning an investment for later this year or next, the Growth Guarantee Scheme will still be available.

£500 million in additional capacity for tariff-affected businesses

In April 2025, the Chancellor announced an extra £500 million in lending capacity specifically aimed at smaller businesses dealing with cashflow pressure from changes to global tariff rates. This doesn’t change the scheme’s terms or eligibility criteria. It just means more money is available through GGS-accredited lenders for businesses that need support managing the impact of trade disruption. If rising import costs or supply chain shifts have squeezed your margins, this applies to you.

The Green GGS pilot

The British Business Bank is running a pilot variant of the scheme designed to support businesses investing in green assets. Things like solar panels, electric vehicles, heat pumps, or other equipment that supports the transition to a low-carbon economy.

The problem it’s solving is that lenders are often cautious about financing green assets because the second-hand market for them is still immature. If a borrower defaults, the lender isn’t confident they can recover the asset’s value. The Green GGS addresses this by providing an enhanced guarantee that sets a floor on the lender’s potential losses.

It’s still a pilot at this stage, running with a single lender and an initial portfolio of £30 million. But it signals where the scheme is heading. If your business is considering an investment in sustainable equipment, ask your lender whether Green GGS-backed finance is available.

Finding a business loan when you have bad credit is more complicated than applying with a clean credit history. If you’re wondering whether you can get a business loan with bad credit, the short answer is yes. Some lenders will still consider you, even if there are CCJs, defaults or late payments on your record. The trade-off is that the products, costs and criteria will usually look very different to standard high street finance.

This guide looks at how lenders view bad credit and what your options look like if you have CCJs or other adverse markers. We’ll also share the main risks to be aware of, and where a specialist broker can add value if you’re comparing offers.

What counts as bad credit for business loans?

Bad credit usually refers to adverse information on your personal credit file, your business credit file, or both.

Personal credit problems:

• Missed or late payments on credit cards, loans, overdrafts or utilities
• Defaults where an account has gone unpaid for a period of time
• County Court Judgments (CCJs), especially recent or unsatisfied ones
• Individual Voluntary Arrangements (IVAs) or bankruptcy
• Maxed-out or heavily used credit facilities, even if payments are up to date

Business credit issues:

• Company credit reports showing registered CCJs against the business
• Arrears with HMRC, suppliers or existing lenders
• Frequent returned or unpaid direct debits from the business bank account
• Signs of persistent cash flow pressure, such as constantly running at the edge of an overdraft

You don’t need multiple issues to be seen as higher risk. Even a single CCJ or default can push you out of mainstream high street lending and into specialist bad credit business loan territory.

The key thing to understand is that lenders look beyond just your credit score. They consider the pattern and timing of any issues, how your business is performing today, and whether the new borrowing looks affordable.

Can you get a business loan with bad credit?

Yes, you can get a business loan with bad credit in many cases. A poor credit score, CCJs, defaults or late payments don’t automatically rule you out, but they do change how lenders view your application and which products are available.

Most business lenders look at a mix of factors:

• How recent the issues are. A CCJ from last year carries more weight than one from five years ago.
• Whether problems are settled or ongoing. Satisfied CCJs and cleared defaults are viewed more positively than unpaid ones.
• How the business is performing now. Turnover trends, profit, cash flow and bank statements can all help offset past problems.
• What security is available. Assets, property or a personal guarantee can sometimes open doors that would otherwise be closed.
• How much you want to borrow and why. Using funding to stabilise or grow a viable business is viewed differently to borrowing just to plug repeated shortfalls.

If your credit issues are more severe or recent, you’re less likely to be approved by a high street bank. Instead, you’ll be looking at a bad credit business loan from a specialist lender, or at alternative products such as asset finance, invoice finance or merchant cash advances.

If you already know your options and want to focus on strengthening your application, see our guide on how to improve your chances of approval with bad credit.

Loans for people with CCJs

If you’re searching for loans for people with CCJs, it’s still possible to get business finance, but a CCJ is a serious negative mark and it will narrow your options.

Lenders focus on whether the CCJ is satisfied or still outstanding, how recent it is, and what the rest of your profile looks like. A satisfied CCJ from several years ago with clean conduct since is very different to an unpaid judgment from last year alongside other missed payments. Strong accounts and healthy cash flow can also help soften the impact.

Where the wider picture is reasonably positive, you may still be able to access a straightforward business loan from a more flexible lender, particularly if the CCJ has been settled.

If the issue is more recent or there are multiple adverse markers, you’re more likely to be looking at a bad credit business loan from a specialist, with higher pricing and tighter terms. Alternatively, you might consider finance that leans less on your credit history and more on assets, invoices or card takings.

Whatever route you pursue, expect to be asked about the background to the CCJ and how it was resolved. You’ll also need to show that the business is now in a stable position with affordable projections for any new borrowing.

 

How the age of a CCJ affects your options

The age and status of a CCJ matters significantly to lenders. As a rough guide:

CCJ status	Lender appetite	Likely outcome
Active, unsatisfied — registered in the last 12 months	Very limited	Declined by most. Specialist only, high rates
Satisfied — registered 1 to 3 years ago	Limited	Specialist lenders consider it. Rate premium applies
Satisfied — registered 3 or more years ago	Moderate	Treatable, especially with strong recent trading
CCJ registered against the director personally	Varies	Treated separately from a company CCJ — both matter
CCJ registered against the company	Varies	Assessed alongside the director’s personal credit profile

A CCJ against a director personally is not the same as one against the company. Lenders assess both, but they carry different weight depending on the product and whether a personal guarantee is involved.

Business loan options with bad credit

If you’re applying with bad credit, you’re less likely to be offered a straightforward high street facility and more likely to see offers from specialist lenders. These may be structured slightly differently to a standard term loan.

Unsecured business loans

Some lenders will still offer an unsecured business loan where there is bad credit, particularly if issues are older, settled and the business is trading well. Credit checks will still be part of the process and pricing is usually higher than for a clean-credit customer, with stricter limits on how much you can borrow and for how long.

Secured and asset backed lending

If you own property or business assets, a lender may be more open to considering the application on
a secured basis. This could be a loan secured on commercial or residential property, or funding taken against equipment or vehicles. Using security can improve the chances of approval, but
it also means the asset is at risk if repayments are missed.

Cash flow based and alternative finance

In some cases, lenders will place more emphasis on income and trading than on your credit history alone. Examples include invoice finance facilities linked to your debtor book, or merchant cash advances repaid as a percentage of card takings. These can be options where recent credit issues make a traditional loan harder to obtain, but they still need clear evidence of ongoing sales and affordability.

 

Key risks with bad credit business loans

Bad credit business lending can be useful in the right circumstances, but it comes with additional risks worth understanding before you go ahead.

Higher costs

Interest rates and fees are usually higher where there is bad credit or CCJs, reflecting the extra risk the lender is taking on. That can make repayments more of a strain on cash flow if the business hits a quieter period.

Stronger lender controls

You may see shorter terms, tighter covenants or closer monitoring of your account. Missing payments or breaching conditions can lead to extra charges, restrictions or, in some cases, the facility being called in.

Security at risk

Where a loan is secured on property or other assets, those assets are at risk if the business cannot maintain repayments. Personal guarantees can also leave directors personally liable for some or all of the balance if the company cannot pay.

Further impact on credit

If a bad credit business loan later falls into arrears or default, it can worsen both business and personal credit files, making it harder and more expensive to borrow in future.

What rate should you expect?

Higher rates are the cost of access in this market, and they vary enough that your specific profile matters. Most adverse credit unsecured lending sits somewhere between 18% and 45% APR — where you land on that range depends on how recent the adverse history is, what your trading looks like now, and whether you can put any security behind the application.

To put that in cash terms on a £50,000 loan over 18 months:

	Clean credit applicant	Adverse credit applicant
Loan amount	£50,000	£50,000
Term	18 months	18 months
Indicative APR	~15%	~35%
Monthly repayment	~£3,100	~£3,600
Total repayable	~£55,800	~£64,800
Additional interest cost	—	~£9,000 more

Figures are indicative. Actual rates depend on lender, credit profile, trading history, and whether security is available.

That £9,000 difference is the price of access, not a reason to rule it out. If the £50,000 is going into a contract worth £120,000, the numbers still stack up. If it’s filling a cash flow gap with nothing concrete behind it, that’s a different conversation.

Before you apply: what to prepare

Applying with adverse credit means your paperwork will get more scrutiny than a standard application. Lenders want to understand the full picture — not just what went wrong, but what the business looks like now. Going in with everything ready, and being able to explain the context around any adverse entries, genuinely affects both whether you get approved and the rate you’re offered.

✓ Pull your personal credit report from all three agencies (Experian, Equifax, TransUnion) — adverse entries sometimes appear on one and not the others.

✓ Check the company credit file via Creditsafe or Experian Business — know what a lender will see before they see it.

✓ Have at least 6 months of business bank statements ready, ideally 12.

✓ Know the exact status and registration date of any CCJs or defaults — satisfied or outstanding, and when.

✓ Prepare a short explanation of the circumstances — lenders respond better to context than to unexplained gaps.

✓ Have your most recent filed accounts and management accounts ready if the loan is above £50,000.

Is borrowing with bad credit the right move?

You can get a business loan when you have bad credit, but it only makes sense if the funding supports a clear plan and the repayments sit comfortably within your cash flow.

If the business is trading steadily, the money is going into something specific like stock, equipment or contracts, and the numbers still work after you factor in the higher cost, it may be worth exploring. If you’re mainly covering ongoing losses or juggling existing debt, pressing pause and looking at alternatives is often safer.

When your business needs funding, you’ll usually face two main choices: debt or equity financing. Both can give your company the capital to grow, but they work in very different ways.

Debt financing means borrowing money and paying it back with interest, while equity financing involves selling a share of your business to investors in exchange for capital. Each has its own trade-offs in terms of control, flexibility, and growth potential.

In this guide, we’ll break down debt vs equity financing, explaining how each option works, their pros and cons, and how to choose the right fit for your business goals.

What is debt financing?

Debt financing means borrowing money to fund your business and paying it back over time, usually with interest. It can come from banks, online lenders, or even friends and family – anywhere you take a loan with agreed repayments.

The biggest advantage of debt financing is control. You keep full ownership of your business and make decisions your way. As long as you meet the repayment terms, your lender has no say in how you run things.

It’s also predictable. You know how much you owe, when payments are due, and what it will cost you overall. But that structure comes with pressure. Missed payments or high interest rates can make cash flow tight, especially in slower months.

Debt financing works best when your income is steady and you want to grow without giving up equity. It’s often used for things like buying equipment, funding marketing, or expanding into new markets. These are short or medium term investments that can bring a clear return when managed well.

Read next: How do business loans work?

What is equity financing?

Equity financing means raising money by selling a share of your business to investors. Instead of repaying a loan, you offer part ownership in exchange for capital that helps your company grow.

The biggest benefit is freedom from repayments. With no fixed monthly costs, your cash flow has more room to breathe. You also gain investors who can bring experience, connections, and advice that go beyond funding.

The trade-off is control. When you sell equity, you share decision-making power and future profits. It’s a partnership, not a debt, and one that works best when you value expertise and long-term growth over full ownership.

Equity financing is common for start-ups and growing businesses that need flexibility or want to scale quickly. It suits moments when steady repayments aren’t realistic, and collaboration can move the business forward faster.

Differences between debt and equity financing

Both debt and equity financing can give your business the money it needs to grow, but they work in very different ways. The right choice depends on how you want to manage ownership, control, and risk.

Debt financing means borrowing money and paying it back with interest. You stay in charge of your business and keep all future profits, but you take on the pressure of regular repayments. It suits businesses with steady cash flow that can comfortably manage fixed costs.

Equity financing brings in investors who provide capital in exchange for ownership. You don’t have to make repayments, which frees up cash in the short term, but you share profits and decision-making. It works best for businesses that want flexibility, mentorship, or the backing to scale faster.

In simple terms, debt is about control and predictability. Equity is about partnership and growth. Most businesses use a mix of both at different stages, balancing ownership with opportunity.

Advantages and disadvantages of debt financing

Debt financing gives your business the funds to grow while keeping full ownership. It’s a reliable way to raise money, but it does come with responsibility. 

Advantages

• You stay in control. The lender has no share in your business, so decisions and profits remain yours.
• Clear repayment terms. You agree on payments upfront, which makes it easier to plan ahead and manage cash flow.
• Possible tax relief. In many cases, interest on business loans can be deducted, which helps reduce overall costs.
• Builds credibility. Making repayments on time strengthens your business credit and can open doors to future funding.

Disadvantages

• Regular repayments. Payments still need to be made even when income slows, which can add pressure.
• Interest costs. Borrowing always comes at a price, and interest adds up over time.
• Security requirements. Some loans need collateral, which could put assets at risk if repayments are missed.
• Limits flexibility. Carrying a lot of debt can limit future borrowing options or make investors more cautious.

When managed well, debt financing can be a useful way to grow your business on your own terms. It works best when you have steady income and a clear plan for repayment.

Advantages and disadvantages of equity financing

Equity financing allows you to raise money by selling a share of your business. It’s a good option when you want to grow but don’t want the pressure of regular repayments. Like any funding route, it has benefits and trade-offs to weigh up before deciding if it suits your plans.

Advantages

• No repayments. Because you’re not borrowing money, there are no monthly payments or interest costs. 
• Shared risk. Investors share the financial risk and the reward, so you’re not carrying it all alone.
• Support and experience. Many investors bring knowledge, networks, and insight that can help your business move forward.
• Better cash flow. With no loan repayments, your business can reinvest profits into development, marketing, or expansion.

Disadvantages

• Shared ownership. Investors become part-owners and may want a say in how key decisions are made.
• Profit sharing. Future profits are divided between you and your investors, which means a smaller personal return.
• Time and process. Securing investment takes longer than applying for a loan and often involves legal and financial checks.
• Expectations of growth. Investors usually look for a clear path to returns and may expect faster progress than a business funded through debt.

For many SMEs, equity financing is as much about partnership as funding. Choosing investors who share your goals can give you the stability and perspective to grow on stronger foundations.

Debt vs equity: which is right for you?

Choosing between debt and equity comes down to what matters most to you and how you want your business to grow.

If you like having full control and knowing exactly what you owe, debt financing can give you that stability. If you’re open to sharing ownership in exchange for insight, funding, and support, equity financing can help you move faster and think bigger.

Many SMEs find that using a mix of both works best. Debt can help you stay agile and independent, while equity brings fresh ideas and long-term backing. What matters most is choosing the option that feels right for your goals, your cash flow, and your way of doing business.

If you’re exploring other ways to fund growth, read our guide on bridging loans to see how they can make short-term opportunities easier to manage.

Buying land, starting a development or raising capital for a project doesn’t always go to plan. Funding can take time, and opportunities don’t always wait. That’s where a bridging loan can help. It’s short-term finance that releases funds quickly so you can keep your plans moving.

A bridging loan gives you access to money while you wait for funds from another source, such as a sale, refinance or new funding facility. It’s secured against property or land and often used by developers, investors and business owners who need flexibility to buy, build or reinvest without delay.

Because interest is usually rolled up and repaid at the end of the term, bridging loans can also help ease short-term pressure on cash flow while you focus on your next stage of growth.

If you’re exploring your options or want to understand how bridging loans work, this guide explains what they are, when they’re useful and the key things to consider before applying.

What Is a Bridging Loan?

A bridging loan is a short-term finance solution that helps businesses, developers and investors access funds quickly while waiting for other capital to come through. It’s often used to buy land, start a development or inject cash into a project without having to wait for a sale or refinance to complete.

Instead of putting plans on hold while funding catches up, a bridging loan lets you move ahead and repay once your exit is ready. The loan is usually secured against property or land and runs for a few months up to around two years, with interest often rolled up and repaid at the end of the term.

At its simplest, a bridging loan is exactly what it sounds like: a practical way to bridge the gap between needing finance now and receiving it later.

How Does a Bridging Loan Work?

A bridging loan gives you quick access to funds that are repaid once your exit is ready. That exit might be a property sale, a refinance or the release of other capital. Because the loan is secured against land or property, it can often be arranged much faster than traditional finance.

The lender will look at the value of the asset, how long you’ll need the funds for, and your exit plan. Once approved, the money can be released within days, which makes bridging a practical option when a deal or project can’t wait.

Most commercial bridging loans run between six and twenty-four months. Interest is rolled up and paid at the end of the term, so there are no monthly repayments to manage while the project is underway. That flexibility helps keep cash flow healthy while you focus on the work in front of you.

For example, a developer might use a bridging loan to buy land while waiting for planning approval, or an investor might use one to refurbish a property before refinancing. Once the project’s complete or the asset is sold, the loan is repaid in full.

When Should You Use a Bridging Loan?

A bridging loan can be useful any time there’s a gap between when you need funds and when longer-term finance becomes available. It’s often used by property developers, investors, and business owners who need to move quickly on an opportunity that can’t wait.

You might use a bridging loan to:

• Buy land or development sites. Bridging finance can help you secure a site fast while you wait for planning approval or a longer-term facility to complete.
• Fund a property refurbishment or conversion. Developers and investors often use bridging loans to cover renovation costs before refinancing onto a buy-to-let or commercial mortgage.
• Support business cash flow. Companies can release equity from owned property to invest in growth, manage short-term costs, or take advantage of new opportunities.
• Purchase property at auction. Auctions often require completion within weeks. Bridging gives you the funds to secure the property first and sort your main finance later.
• Cover project costs while waiting for a sale or refinance. If funds from another project or asset are still tied up, bridging finance can keep things moving in the meantime.

Since bridging loans are secured against property, you might find it useful to read more about the difference between secured and unsecured loans before deciding which option fits your situation best.

Are Bridging Loans a Good Idea?

A bridging loan can be a good idea if you need short-term finance and already have a clear plan for how you’ll repay it. They’re often used by developers, investors and business owners who want to move ahead with a project while waiting for longer-term funds to come through.

You might use one to buy land, fund a refurbishment or release equity from property to support cash flow. The key is to have a clear exit in place, such as a sale or refinance, that will repay the loan once the project is complete.

It’s also important to weigh up the costs. Bridging loans tend to have higher interest rates and fees than standard business finance, and because they’re secured against property or land, timing really matters. Make sure your exit strategy is realistic and that you’ve allowed enough time for everything to complete.

Used carefully, a bridging loan can unlock capital fast and help you keep your plans on track. It offers flexibility, speed, and breathing room when you need it most.

• Want to learn about another form of short-term finance? Read our guide on asset finance to see how it compares to bridging loans.

For many small businesses, cash flow doesn’t always run to plan. A quiet season, a late-paying customer, or an unexpected opportunity can all leave you needing quick access to funds. One option that’s become increasingly popular is the merchant cash advance.

Put simply, a merchant cash advance gives you an upfront sum of money, which you then repay through a share of your future card sales. Because repayments move in line with your turnover, it can feel more manageable than fixed monthly instalments, especially if your income tends to fluctuate.

In this guide, we’ll explain exactly what a merchant cash advance is, how it works, and even what happens if you default on a merchant cash advance. By the end, you’ll know whether this type of finance could be the right fit for your business.

What Is a Merchant Cash Advance?

A merchant cash advance (MCA) is a type of business finance that gives you a lump sum upfront, repaid gradually through your card sales. 

Unlike a traditional loan with fixed instalments, the repayment adjusts with your turnover. This means you pay back more when sales are strong and less when things are quieter.

It’s a simple model. The finance provider agrees an advance based on your recent card revenue, then collects a set percentage of your daily or weekly transactions until the balance is cleared.

Because repayments are tied to card takings, merchant cash advance loans are most commonly used in sectors like retail, hospitality, and e-commerce, where card payments make up the bulk of income. 

They’re also unsecured, so you don’t need to put property or other assets at risk, and approval tends to be faster than with a standard business loan.

How Does a Merchant Cash Advance Work?

The amount you can borrow through a merchant cash advance is usually linked to your recent card sales. A provider reviews your turnover over the past few months and agrees an advance that reflects those figures.

Once approved, the funds are transferred straight into your business account. From there, repayment happens automatically. Instead of fixed instalments, the provider takes an agreed percentage of your card sales as they come in.

This means repayments move with your income. 

• On busy weeks, more is repaid as sales are higher.
• On quiet weeks, less is repaid, giving your cash flow more breathing space.

For example, a café might repay more in December when footfall is high, and less in January when trade naturally slows.

There’s no rigid repayment schedule. The advance is gradually cleared through your sales until the balance, along with the agreed fees, has been repaid in full.

Advantages of a Merchant Cash Advance

For many SMEs, the main benefit of a merchant cash advance is flexibility. Repayments adjust in line with sales, which can take the pressure off during quieter months. But there are several other advantages worth noting:

1. Quick access to funds

The application process is usually quicker and lighter on paperwork than a traditional business loan. Once approved, funds can often reach your account within a few days. This is particularly useful if you need to cover wages, buy stock, or act on a new opportunity quickly.

2. Repayments that move with your turnover

Because repayments are taken as a set percentage of your card transactions, they rise and fall in line with your turnover. When business is busy, more is repaid; when things are quieter, less goes out. This helps manage seasonal or unpredictable income.

3. No security needed

Merchant cash advance loans are unsecured, so you don’t need to tie up property or other assets. If you’re interested in other unsecured funding routes, you can also explore our unsecured business loans page.

4. Designed for card-based businesses

In sectors such as hospitality, retail, and online sales, where most income comes through card transactions, repayments happen automatically through your existing system.

5. Clear and predictable

From the outset, you’ll know what percentage of sales is being collected. That makes it simple to understand how the advance will be paid back, without hidden surprises.

Disadvantages of a Merchant Cash Advance

While merchant cash advances can be a useful tool, they aren’t always the best fit for every business. Here are some of the drawbacks to think about before applying:

1. Higher overall cost

MCAs can be more expensive than traditional loans. The fees are agreed upfront, and the total doesn’t reduce even if you clear the balance faster than expected.

2. Reliance on card sales

Because repayments are taken directly from card transactions, this type of finance works best for businesses that rely heavily on card payments. If you take most payments in cash or through invoices, it may not be suitable.

3. Uncertain repayment timeline

There’s no fixed end date. How quickly the advance is repaid depends entirely on your sales – busy periods will shorten the term, while quieter months can extend it. That can make planning cash flow less predictable.

4. Smaller borrowing amounts

The size of the advance is tied to your turnover. If you’re a newer or lower-volume business, the amount you qualify for may be fairly modest.

5. Not regulated in the same way as loans

In the UK, merchant cash advances aren’t regulated by the Financial Conduct Authority. This doesn’t mean they’re unsafe, but it does mean you don’t have the same formal protections you’d find with a regulated business loan.

What Happens if You Default on a Merchant Cash Advance?

Defaulting on a merchant cash advance means you’re unable to keep up with the agreed repayments taken from your card sales. This usually happens if sales drop sharply or if the business stops trading.

If a default on a MCA occurs, providers may:

• Ask for the outstanding balance. You could be asked to repay what’s left in full.
  
• Apply fees or charges. Extra costs can be added if payments are missed.
  
• Report to credit agencies. This could make future borrowing more difficult.
  
• Take legal steps. In more serious cases, action may be taken to recover the debt.

Because merchant cash advances are unsecured, your property or assets aren’t automatically at risk. That said, defaulting can still put real strain on your finances and limit future funding options. 

If you’re ever concerned about repayments, it’s best to contact the provider as soon as possible to discuss potential solutions.

Is a Merchant Cash Advance Right for You?

A merchant cash advance can be a fast, flexible way to raise money if most of your sales come through cards and your income tends to fluctuate. Because repayments track your turnover, the pressure eases during quieter trading periods and increases naturally when sales are strong.

That said, it isn’t the right fit for every business. The higher overall cost, variable repayment length, and reliance on card sales are important factors to weigh up before deciding.

If you’d like to understand this option in more depth, you can find more detail on our merchant cash advance page.

Every business hits a moment where extra cash could make all the difference. Maybe you’ve spotted a chance to grow, or maybe you just need a little breathing room to cover day-to-day costs. In times like these, many owners start wondering how business loans work.

At their heart, business loans are quite simple. You borrow money to support your company and repay it over time. What’s less clear is the range of loan types available, how lenders decide, and which option makes sense for you.

This article will walk you through the essentials so you feel confident about what a business loan is, how it works, and the steps to take if you’re thinking about applying.

What is a Business Loan?

A business loan is money borrowed from a lender to support your company, with an agreement to pay it back over time, usually in monthly instalments and with interest.

Businesses use loans for different reasons. Some need short-term support to manage cash flow or cover everyday expenses. Others borrow to invest in growth, whether that’s upgrading equipment, hiring staff, or opening in a new location.

In practice, a business loan gives you access to funding when your own cash reserves aren’t enough. It’s a financial tool designed to help you keep the business running smoothly or move forward with plans that might otherwise stay on hold.

How Do Business Loans Work?

Once you’re approved for a business loan, the lender provides a lump sum of money that goes straight into your business account. You then repay it over an agreed period, usually in monthly instalments that cover both the amount you borrowed and the interest.

To decide how much to lend, providers look at your company’s financial picture. They’ll consider things like turnover, credit history, and what the loan is needed for. The aim is to make sure the repayments are realistic and the funding helps your business move forward.

For some, a business loan is simply a safety net to get through a slow patch and keep staff paid. For others, it’s the push they need to invest in something bigger, like new equipment or a second location. The repayment model stays the same, but the impact it has on each business can look very different.

Different Types of Business Loans 

Business loans come in a few different forms, and the right choice depends on what you’re trying to achieve. Some give you quick access to cash, while others are designed for bigger, long-term plans.

Unsecured Business Loans

With an unsecured loan, you don’t need to put up assets like property or equipment as security. That makes them faster to arrange and a practical choice if you want funding to cover cash flow or take advantage of a short-term opportunity.

If cash flow support sounds like what you need, you can find out more on our unsecured business loans page.

Secured Business Loans

A secured loan is backed by assets such as property, vehicles, or equipment. Because this lowers the risk for the lender, you may be able to borrow larger amounts or access more competitive rates.

For larger borrowing or long-term investment, see how a secured loan could work for your business.

Short-Term vs Long-Term Loans

The length of a loan can make a big difference to how useful it is. Short-term loans, often repaid within a year, can help cover things like seasonal stock, unexpected bills, or payroll during a quiet patch. They’re about keeping the business steady when cash is tight.

Long-term loans run for several years and are usually tied to bigger projects. A company might use one to buy new machinery, expand into a larger space, or fund a big marketing campaign. Because the repayments are spread out, they’re easier to manage when you’re investing in growth that takes time to pay off.

Business Loan Requirements in the UK 

Applying for a business loan can feel daunting, but the process is more straightforward when you know what lenders are looking for.

First, it helps to be clear on why you need the loan and how much funding makes sense for your business. Lenders want to see that the money has a purpose and that you’ve thought through how it will be repaid.

You’ll usually need to provide recent financial information, such as accounts, bank statements, or cash flow forecasts. Your credit history also plays a role, as it shows how reliably you’ve managed borrowing in the past.

Many business owners find the process easier with guidance. Working with a broker can save time, highlight the right loan options, and improve your chances of getting approved. If you’d like tailored advice, you can get in touch with our team.

Key Considerations Before Applying

Every loan has its upsides and trade-offs. Here are a few things to keep in mind:

• Repayment certainty: Monthly repayments are fixed, so you’ll need to make sure your cash flow can comfortably cover them.
• Interest rates: These vary depending on your credit history and whether the loan is secured or unsecured.
• Documentation: Lenders will usually expect to see accounts, bank statements, or cash flow forecasts.
• Extra support: The UK government offers additional business finance guidance that can help you explore funding options beyond traditional loans.

For a clearer picture of what a loan could mean for your cash flow, use our business loan calculator to test repayment options before you apply.

Find the Right Loan for Your Business

When you’re ready to take the next step, you can apply for a business loan online or chat to our team about the best options for your business. We’ll help you find funding that feels right for where you are now – and where you want to grow.