Why most funding problems are really matching problems
Ask a business owner why a facility went wrong and you’ll usually hear something about the lender. Ask a few more questions and a different picture tends to emerge. The lender did roughly what it said it would. The product just wasn’t built for the job it was asked to do.
That’s the thing about business funding. There’s no such thing as a bad product, only a badly matched one. A five-year loan is a fine piece of kit until you use it to plug a working capital gap that comes back every quarter. Invoice finance is excellent until you try to use it to buy a building.
So before you compare rates, compare purposes.
Start with the question nobody asks
What is the money actually for?
Not “growth”. Not “cash flow”. Those are outcomes, not uses. Be specific:
- I need to pay wages on the 28th and my biggest customer pays on 60 days.
- I need a £180,000 machine that will run for eight years.
- I need to buy a unit before the vendor sells it to someone else.
- I need to pay a supplier in Shenzhen before the goods leave the port.
- I need to buy the trade and assets of a competitor.
Each of those points at a different product. Once the use is clear, the shortlist usually writes itself.
The golden rule: match the term to the need
The single most common mistake is a mismatch between how long you need the money and how long you’re paying for it.
Short-term need, long-term product means you’re still paying in year four for a stock purchase that turned over in six weeks. Long-term need, short-term product is worse. You end up refinancing under pressure, which is the most expensive moment to borrow.
A rough guide:
| Need | Typical horizon | Sensible fits |
|---|---|---|
| Recurring gap between invoicing and getting paid | Ongoing | Invoice finance, revolving credit |
| Equipment, vehicles, plant | 3–7 years | Hire purchase, lease, refinance of existing assets |
| Property purchase or refurbishment | 6–24 months, then exit | Bridging, then a term mortgage |
| Stock or import purchase | 30–120 days | Trade finance, import loans |
| Acquisition, restructure, one-off project | 2–6 years | Term loan, secured or unsecured |
A quick tour of the toolbox
At Compare Your Funding we spend most of a first conversation here rather than on rates, because until the product is right the rate is academic.
Invoice finance advances a percentage of your unpaid invoices, usually 80–90%, and releases the rest when the customer pays. It grows as you grow, which is why it suits businesses whose problem is timing rather than profitability. Factoring includes credit control; discounting leaves collections with you and is usually confidential. Selective options let you pick individual invoices rather than committing the whole ledger.
Asset finance spreads the cost of equipment over its working life, so the machine pays for itself as it earns. Hire purchase leads to ownership; leasing usually doesn’t. Refinance lets you release cash from assets you already own outright.
Business loans are the familiar option. Unsecured is quicker and dearer; secured is cheaper and slower, and the security is real.
Bridging and property finance buys you speed. It’s designed to be repaid from a defined event, whether that’s a sale, a refinance or a completed development. It is short-term money and it should never quietly become long-term money.
Trade finance funds the gap between paying a supplier and getting paid by your customer, which is exactly where importers get stuck.
Merchant cash advances take a percentage of your card takings. They’re fast and flexible on paper. Do the sums on the total repayable before you sign anything, because the effective cost is often considerably higher than the headline suggests.
Where’s the repayment coming from?
Every lender is asking this, so you should ask it first. Funding is repaid from one of three places: trading profit, an asset sale, or another facility.
If the answer is trading profit, the question becomes whether the monthly cost fits comfortably alongside everything else you already pay. If it’s an asset sale, how firm is that sale and what’s the plan if it slips by three months? If it’s another facility, is that refinance realistic on today’s criteria rather than the criteria you’d like to exist?
An honest answer here saves an enormous amount of grief later.
Headline rate is not the price
Two facilities quoted at similar rates can cost wildly different amounts. Look for:
- Arrangement and facility fees
- Minimum terms and early settlement charges
- Service charges on invoice finance, separate from the discount margin
- Documentation, audit, valuation and legal fees
- Non-utilisation fees on facilities you might not fully draw
- Whether the rate is fixed or tracks a base rate that can move
Ask any lender or broker for the total cost over the life of the facility in pounds, not percentages. If nobody will put that in writing, that tells you something.
Speed always has a price
Fast money costs more. That’s not a scandal, it’s how risk pricing works. The relevant question is whether the speed is buying you something worth more than the premium. Securing a site at a good price, taking a bulk discount, or landing a contract that transforms your year can easily justify a higher rate. Impatience can’t.
The cheapest way to reduce your cost of funding is to start the conversation earlier. Three months of lead time gives you options. Three days gives you whatever’s available.
Before you apply, run through these
1. What exactly is the money for, and is the need one-off or recurring?
2. How long until it’s repaid, and from what source?
3. What happens to the plan if that source is three months late?
4. What security am I willing to give, and what am I not?
5. What’s the total cost in pounds, including exit?
6. Have I looked at more than one type of product, or just the one I already had in mind?
Most businesses that end up with the wrong facility never got as far as question six. They asked their bank, their bank offered its product, and that was that. It’s not that the bank was wrong. It just had one shelf, and you needed something from a different aisle.
Compare Your Funding exists to walk the whole shop with you. If you’d like to talk through question one before you get anywhere near an application, we’re always happy to have that conversation.
About Compare Your Funding
Compare Your Funding is an independent commercial finance brokerage based in Stockport, registered with both FIBA and the NACFB. We arrange invoice finance, asset finance, property and bridging, trade finance and business loans, and we’re upfront about how we’re paid. Compare Your Funding is a trading style of TGL Solutions Limited.
compareyourfunding.com · 0161 871 9840 · info@compareyourfunding.com
