5 types of business finance for UK tech companies


The UK tech sector is thriving.

A Technation report released in 2021 found that UK tech companies had attracted $ 15 billion (£ 11.2 billion) in venture capital funding in 2020 – the highest on record.

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

Yet not all tech companies receive venture capital, and as a result, many tech companies can benefit from additional funding to operate and grow.

Additional funding can allow a tech company to develop and market new solutions, for example, or hire new staff to meet increased demand for products or services.

While technology companies can often find it difficult to obtain a business loan from a bank, there are a number of financing facilities that are more accessible in the broader financial services market today.

If you are running a tech company and need financing, working capital loans, term loans, invoice financing facilities, merchant cash advances, and e-commerce facilities are worth checking out.

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

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

1. Working capital loan

Working capital loans are used by businesses (technology or otherwise) to help finance day-to-day operations, such as paying staff salaries, utility bills, or rent.

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

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

Working capital funding allows you to put vital cash back into your tech business so you can continue to operate normally, even during times of reduced trade.

Who is it for ?

Working capital loans can be suitable for high volume B2B or B2C technology companies, SaaS companies and technology consulting firms, etc.

2. Term loan

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

Companies use term loans to finance various business activities. As a tech company, you can use the money to buy new equipment, hire new staff, or expand your operations.

Term loans fall into two categories: secured and unsecured.

Secured loans generally use an asset that you own, such as a property, as collateral for the loan. This means that if you don’t keep track of your loan payments, you could lose your assets.

Unsecured loans do not require any asset to secure the collateral for the loan, but the interest rates tend to be higher.

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

Who is it for ?

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

3. Funding of invoices

Are customer delinquencies or customer invoices disrupting your technology business?

If so, you may be eligible for invoice financing.

Invoice financing is an umbrella term for financing that allows you to quickly access a large percentage (up to 90%) of the value of your invoices, sometimes in as little as 24 hours.

The lender uses your unpaid invoices as collateral for financing; the amount they are willing to lend will depend on their own individual criteria.

You can fund one or more invoices and use the funds to increase your cash flow or invest in your business, depending on your needs.

The financing of invoices falls into two categories:

Invoice factoring

In addition to lending you up to 90% of the value of your invoices, the lender will also take over the management of your sales ledger and collect payments directly from your customers. After deducting their service charge, they’ll pay you the remaining balance.

Discount on invoice

Invoice discounting works the same way as invoice factoring. The main difference is that you keep control of customer payments.

Who is it for ?

Invoice financing can be a suitable option for technology consulting companies, SaaS companies, subscription services and more.

4. Cash advance from the merchant

Merchant Cash Advances (MCA) are designed for businesses that accept customer card payments. So, if you run an online business and accept credit or debit card payments, this type of financing might be right for you.

One of the main advantages of MCAs is flexibility. Refunds vary depending on your business volume, making refunds much easier to manage.

Who is it for ?

Merchant Cash Advances can be a suitable option for high volume B2B or B2C businesses, technology companies that sell products through their website or through a third party site like Amazon, and more.

5. E-commerce finance facility

E-commerce facilities are specially designed for businesses that sell products online. This option is therefore worth exploring if you are looking for funding to fund spending or fuel growth.

If eligible, the lender will provide you with funds based on your future online sales. Money can be used for a variety of purposes, such as getting new users, investing in marketing, or buying stocks.

Who is it for ?

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

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

Read more

How to choose the right financing option for your SME


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