What Are the Alternatives to a Business Loan UK?
George Wilks
Commercial Lead · Sep 1, 2024 · 8 min read
A business loan is one tool in a large toolkit of UK business finance options. Whether because of eligibility, cost, or the nature of the need, there are many situations where an alternative product makes more financial sense. Here is a complete overview of every realistic alternative.
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Asset and invoice based alternatives
If the need is equipment or vehicles: asset finance (hire purchase, finance lease) is almost always cheaper than an unsecured business loan for the same purpose, because the loan is secured against the asset. If the need is working capital tied up in slow-paying customers: invoice finance releases 85% to 90% of invoice value within 24 hours without requiring additional debt. If the business has existing assets: asset refinance (sale and leaseback) releases equity from owned equipment as cash.
Merchant cash advances provide working capital repaid as a percentage of card sales, without a fixed payment schedule. Revenue-based finance provides capital repaid as a percentage of monthly revenue. Neither is cheap, but both are accessible to businesses that cannot meet conventional loan criteria.
Equity and grant funding
Equity investment (angel investment, venture capital, crowdfunding) provides capital in exchange for a share of the business. Unlike debt, it does not need to be repaid and does not accrue interest. The cost is dilution of ownership. For businesses with strong growth potential, equity can be the most appropriate funding mechanism for large capital needs.
Business grants from government bodies, local enterprise partnerships, and trade associations provide non-repayable funding for specific purposes (R&D, innovation, energy efficiency, export development). Grants are competitive and time-consuming to apply for but represent zero-cost capital. The British Business Bank website maintains a searchable grants database for UK businesses.
"The best brokers do not just find you the cheapest loan. They tell you when a loan is not the right instrument at all, and what is."
- George Wilks, Commercial Lead
Frequently Asked Questions
What is the cheapest form of business finance in the UK?
Business grants are free (no repayment). Equity is technically free of interest but has a dilution cost. Among debt products, secured lending against property is typically the cheapest. Invoice finance is often cheaper than an unsecured loan for B2B businesses with slow-paying debtors, because the cost is offset by the working capital benefit.
The bottom line
Spark Finance works across all product categories and will always recommend the most appropriate structure, which may not always be a conventional loan. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
George Wilks
Commercial Lead
George leads commercial relationships at Spark Finance, specialising in property-backed finance including bridging loans, development finance, and commercial mortgages. He works with investors, developers, and owner-occupiers to structure short and long-term property finance.
