​Financing Options and their Respective Interest Rates that small businesses in the United Kingdom can Utilize

Posted by Cory List on 7th Apr 2015


Starting a business is no simple task for both small and start-up business owners. Whether their purpose is to do charitable work or to earn profit, creating it requires various instruments and documents from different people and government agencies. A small business owner may have all the marketing and business skills needed to run his own business. He may be able to secure the means to advertise or promote the business. However, everything will remain a plan without the number one requirement that every business owner, big or small, must have: financing.

Obtaining financial assistance, as most entrepreneurs claim, is harder than establishing the business itself. This is because before an entrepreneur can get financial assistance, he has to prove a lot of things to financial companies and banks such as the following:

a. He must prove that he has the capacity to pay the money that he used to establish the business.

b. He must prove that he has enough property to secure the loan in case he fails to pay it.

c. He must prove that he has no bad record of any previous transaction regarding credit financing.

For established businesses in the United Kingdom (UK), this will not be a problem. For small businesses, however, this will be a challenge. Thus, many companies have provided for small business financing options and their interest rates in UK to give an opportunity for them to start and share the purpose for which they are created.

Some of the small business financing options and their interest rates in UK that owners may consider are the following:

1. Peer to peer lending

Peer to peer lending (P2PL) is a financing option that involves lending money to peers, or individuals with no relationship of any kind, without using an intermediary or a medium such as a bank or a financial institution. Peer to peer lending usually takes place online using various platforms similar to stock trading.

Because the medium or intermediary is usually an independent company, peer to peer lending is also conducted for profit and not solely for financing. Loans in peer to peer are unsecured and are not protected by the law. Despite this lack of protection, liberty is given to borrowers and lenders in terms of the opportunities they want to invest in. Also, because no relationship between borrowers and lenders is required, each of them has the liberty to deal with whatever amount they wish to receive and give, respectively.

Peer to peer lending is one of the small business financing options and their interest rates in UK is variable depending on the company to which they are dealing with. For instance, Landbay charges a rate of 3.5% per annum; Wellesley & Co charges a rate of 3.66% on maturity; and RateSetter charges a variable rate of 2.7%. These companies deal with short term lending. On the other hand, Funding Circle charges a variable rate of 6.3%; Assetz Capital charges 7% per annum gross return, and QuidCycle charges 4.3% representative return. These companies deal with term lending from 6 months to 3 years.

2. Credit cards

Credit cards are, by far, the mostly used financing option around the world. Getting a credit card is easier than getting any financing option available. All that the business owner must do is to apply for one and wait for its approval. Using a credit card to start a business gives a wide range of opportunities for a business owner because theoretically there is a relatively high limit on the amount he can use. However, credit cards are considered the riskiest small business financing options and their interest rates in UK are important to be known before one gets a credit card.

Most credit cards are designed to be used as small business financing options and their interest rates in UK are, on the average, at 18.9% per annum. Some credit card companies may provide for a systematic approach in the payment of interests. For instance, some require the payment of 1.5% balance transfer fee applicable for the first 90 days, and this rate will increase after the lapse of such period.

3. Equity financing

Equity financing is a type of financing option wherein a person receives a stake at someone’s business in exchange of his investment to the latter. Simply stated, in equity financing, someone gets an interest in a business in exchange for the money that he gave to form it.

Equity financing does not require the money invested to be repaid instantly. It is one of the small business financing options and their interest rates in UK has no bearing because there is no interest paid. In turn, the money given becomes an investment that he makes, similar to a person paying money to acquire shares of a company.

Equity financing is difficult to sustain because the investors will be expecting to get a return of their investment. If the business is not guaranteed to give any return, investors will not be enthusiastic to give money. As such, a small business, in using equity financing, must be able to prove to the investors that the business will be a success.

Knowledge on small business financing options and their interest rates in UK will help owners in determining the best financing options to use. While the use of any will depend on the owner’s capacity, choosing and utilizing small business financing options and their interest rates in UK can give these businesses a competitive advantage in the market.