The Three Routes to Business Capital
Every route to business capital can be placed in one of three categories, depending on what the lender uses as the basis for their lending decision. Understanding these categories clarifies which products are available to you and what trade-offs to expect on rate, speed and conditions.
| Route | Security needed | Typical rate | Speed | Adverse credit | Best for |
|---|---|---|---|---|---|
| Secured (property-backed) | Property equity — first or second charge | 0.65 to 1.5% per month (short-term); 6 to 10% p.a. (term) | 2 to 3 weeks | Generally accepted — property equity is primary factor | Larger amounts; lower rates; adverse credit; long-term facilities |
| Asset-backed | The asset itself (HP, lease) or existing assets (sale & leaseback, invoice finance) | 6 to 15% p.a. (HP/lease); 0.2 to 4% fee on invoice finance | 24 hrs to 5 days depending on product | Often accepted — lender holds security over the asset | Acquiring equipment; releasing capital from existing assets; B2B invoice businesses |
| Unsecured (trading-based) | None — personal guarantee typically required | 15 to 60% APR | 24 to 72 hours | Considered but rates are higher; strong bank statements needed | Short-term gaps; no assets; speed is the priority |
The three routes are not mutually exclusive. Many businesses use more than one simultaneously, matching the right structure to each funding requirement rather than looking for a single product to cover everything.
Secured Business Capital
Secured business capital uses property as collateral. The lender places a legal charge on the property — either a first charge (where there is no existing mortgage, or the first mortgage lender consents) or a second charge (behind an existing mortgage) — and the loan is advanced against the available equity.
The assessment for secured business capital is fundamentally different from unsecured or bank lending. The lender's primary concern is the property: its value, its marketability, and the equity available after any existing charges are deducted. The business's trading performance, credit history, and accounts are still reviewed, but they carry far less weight than in unsecured lending. A business with an imperfect credit record but a property with 40% unencumbered equity has access to substantial capital at competitive rates.
Key considerations for the secured route:
- LTV limits: Most short-term secured business lenders will advance up to 65 to 75% of property value. Higher LTVs are possible with additional security or at higher rates. The LTV is calculated against the gross property value, not the equity.
- Property types: Investment property (buy-to-let, commercial, semi-commercial), owner-occupied commercial property, and sometimes a director's personal residence (with appropriate advice). Land with planning permission also accepted by many lenders.
- Exit strategy: Lenders require a clear plan for repayment. Common exits are trading income, refinance to a term facility, property sale, or the resolution of the specific situation being funded.
- What is reviewed beyond the property: Director and company credit history, trading performance, existing charge holders, any insolvency history (which does not automatically disqualify but requires explanation), and the specific purpose of the loan.
Second charge lending is common and straightforward
Many businesses approach secured lending cautiously because they already have a mortgage on the security property. Second charge lending — where the new lender takes a second position behind the existing mortgage lender — is a well-established part of the market. The existing lender's consent is usually not required (though some mortgage conditions include a restriction on further charges, which should always be checked). The second charge lender simply acknowledges the first charge lender's priority in any enforcement scenario.
Asset-Backed Capital
Asset-backed capital uses the business's existing or newly acquired assets as the basis for funding. The asset is the security rather than a property, which makes this route accessible without property ownership.
The main forms of asset-backed capital for businesses seeking to raise funds are:
- Hire purchase: Acquiring new plant, machinery, vehicles or equipment with the lender funding the purchase. The asset serves as security throughout the HP term. Capital is preserved because the purchase cost is spread over time rather than paid upfront.
- Sale and leaseback: Selling existing unencumbered business assets to a lender and leasing them back immediately. Cash is released at point of sale; the asset remains in operational use throughout. This is one of the most effective routes for businesses that have accumulated a portfolio of owned assets and need working capital without disrupting operations.
- Invoice finance as capital: For B2B businesses, outstanding invoices represent an asset. Invoice finance converts that asset into immediate cash — up to 90% of invoice value within 24 hours. The capital available grows automatically with turnover, making it one of the most scalable sources of business capital available.
The credit assessment for asset-backed capital focuses on the asset rather than the borrower. For hire purchase and sale and leaseback, the key question is: what is the secondary market value of this asset if the lender needs to repossess and sell it? Assets with liquid, deep secondary markets (commercial vehicles, standard plant, agricultural equipment) attract the best terms. For invoice finance, the assessment is on your customers' creditworthiness rather than your own.
Unsecured Business Capital
Unsecured business capital requires no specific asset as collateral. The lender's decision is based primarily on the business's trading performance — its ability to generate sufficient cash to repay. In the absence of a property or asset backstop, a director's personal guarantee provides the lender with personal recourse if the company cannot repay.
Specialist unsecured lenders assess the following, broadly in this order of importance:
- Bank statements (6 to 12 months): Consistent monthly turnover is the primary evidence of trading viability. Lenders look for regular income credits, a positive average daily balance, and an absence of returned payments or sustained overdraft usage.
- Turnover level: Most unsecured lenders require a minimum of £10,000 per month in turnover. Facility sizes are typically limited to a multiple of monthly turnover — commonly one to two times monthly revenue.
- Trading history: Minimum six months; preferably twelve or more. Very early-stage businesses have very limited unsecured options.
- Purpose: A clear, credible business purpose linked to operations, growth or cash management.
- Director profile: Credit history is reviewed but adverse credit does not automatically disqualify. The context, age and resolution of adverse events matters more than the event itself.
Typical unsecured business loan parameters in the specialist market: £10,000 to £500,000, 3 to 36 months, decisions in 24 to 72 hours, funds drawn within 48 hours of approval for most providers.
Combining Routes
The most effective capital structures for growing businesses often combine more than one route, matching each funding need to the product best suited to it. This is not unusual or complex — it is standard practice for businesses beyond the earliest stage.
| Business situation | Combined structure | Why it works |
|---|---|---|
| Manufacturing business acquiring a new site and needing working capital | Secured bridging loan for property acquisition + invoice discounting facility for ongoing working capital | Bridging gives speed for the property; invoice finance provides revolving working capital that grows with turnover |
| Haulage company expanding fleet and needing cash | HP for new vehicles + sale and leaseback of existing owned fleet | HP preserves cash for fleet growth; leaseback releases capital from existing assets without disposal |
| Construction firm with HMRC debt and growing order book | Secured bridging to settle HMRC debt + invoice finance for new contracts | Bridging resolves the immediate HMRC pressure; invoice finance funds working capital as the order book grows |
| Retail business with seasonal cashflow | Merchant cash advance pre-season + standard trading cashflow off-season | MCA advances capital before peak trading; repays automatically through the seasonal revenue uplift |
A specialist broker will assess the business's full position — assets, trading, property, credit history, and specific capital requirement — and structure an arrangement that uses the right tools in the right proportions, rather than defaulting to the easiest single product.
How Adverse Credit Affects Each Route
Adverse credit does not close all doors to business capital. Its impact varies significantly between the three routes, and understanding this helps businesses focus their energy on the products most likely to be available.
What each route can accommodate with adverse credit
- ✓Secured (property): CCJs (satisfied or unsatisfied) — generally accepted; defaults — generally accepted; director IVA — accepted in most cases with IP consent; company insolvency history — accepted if company is clean; personal bankruptcy (discharged) — accepted by most lenders.
- ✓Asset-backed (HP/lease): CCJs and defaults generally accepted — lender holds asset security; IVA — possible with IP consent; personal bankruptcy (discharged 12+ months) — accepted by many lenders; very recent undischarged adverse — harder but some specialist lenders.
- ✓Asset-backed (invoice finance): Credit profile of borrower largely irrelevant — assessment is on debtor creditworthiness; IVA — routinely accepted with IP consent; even companies in administration can sometimes access invoice finance.
- ✓Unsecured: Mild adverse (old, satisfied CCJ or default) — accepted with explanation and strong bank statements; significant adverse (recent, unsatisfied, multiple events) — very limited options; director IVA — difficult but not impossible for the right lender; personal bankruptcy (discharged) — most unsecured lenders decline.
Context matters as much as the event
Specialist lenders assess adverse credit contextually. A CCJ that arose during the pandemic, was settled within six months, and has been followed by two years of clean trading is treated very differently from a recent unsatisfied CCJ on a currently struggling business. A written explanation of the circumstances — factual, brief, and paired with evidence of recovery — materially improves outcomes across all three routes.
FAQs
Do I need audited accounts to raise business capital?
Not necessarily. Many specialist lenders accept management accounts, unaudited accounts or bank statements in place of fully audited figures. For secured lending, the primary evidence is the property value and equity. For asset-backed lending, the evidence is the asset. For unsecured lending, six to twelve months of business bank statements are typically sufficient for facilities up to £250,000.
Can a recently formed company raise business capital?
Yes, on the right route. Secured lending against property can be arranged from day one of trading: the assessment is on the property, not the trading history. Asset finance can also be available from early trading. Unsecured lending typically requires a minimum of six months of business bank statements to demonstrate trading history.
What is the difference between a personal guarantee and a debenture?
A personal guarantee is a personal commitment by a director to cover the business loan if the company cannot repay it. A debenture is a charge registered at Companies House over the assets of the business as a whole, giving the lender priority over other creditors in insolvency. Both are commonly required for unsecured business lending. Secured lending against specific property usually relies on the property charge rather than requiring a debenture, though PGs are still common.
Can I raise capital against a property owned by my limited company?
Yes. Most secured business lenders lend to limited companies with a charge against company-owned property. The underwriting focuses on the property equity and the company's ability to service or exit the facility. Director personal guarantees are typically required as an additional comfort, but the primary security is the company property.
How much will raising business capital cost?
Costs depend heavily on the route. Secured property-backed facilities carry arrangement fees of 1.5 to 2% and monthly rates of 0.65 to 1.5% for short-term facilities. Asset finance rates vary by asset type, term and structure. Unsecured working capital carries origination fees of 2 to 5% and higher monthly rates reflecting the lack of collateral. In all cases, a specialist broker sourcing competitive terms across multiple lenders will materially improve on the rates available through a single lender.