If your company needs cash and traditional bank lending is not available, there are at least eight alternative funding routes that UK SMEs can access. Some inject new capital. Others unlock cash that is already sitting in your business but tied up in invoices, assets, or contracts.
We work with directors who assume their only options are a bank loan or liquidation. Neither may be right. A company with a strong order book but a cash-flow gap may be better served by invoice finance than by a term loan. A company with valuable equipment may be able to raise capital through asset-based lending without taking on new debt. We have seen companies survive crises that looked terminal because the director discovered a funding route they did not know existed. We have also seen companies borrow their way deeper into insolvency because the new funding did not fix the underlying problem. The right funding depends on why you need it, not just how much.
Quick Answer: Funding Options for UK SMEs in Financial Difficulty
Invoice finance — borrow against outstanding invoices (70-90% advance)
Asset-based lending — borrow against equipment, property, stock, or debtors
HMRC Time to Pay — spread tax debts over 6-12 months (free, no new borrowing)
Refinancing — restructure existing loans with better terms or a new lender
Merchant cash advance — advance against future card payments
Peer-to-peer / alternative lending — online platforms with faster decisions than banks
Government-backed schemes — Start Up Loans, British Business Bank programmes
Equity investment — sell a stake to an investor in exchange for capital
We stress: funding is not rescue. If the business model is broken and the company loses money every month, new funding delays insolvency rather than preventing it. Borrowing to cover trading losses is the most expensive way to postpone a CVL. New funding only makes sense if the business is viable and the cash injection solves a specific, identifiable problem.
Invoice Finance: Unlocking Cash in Your Debtor Book
Invoice finance lets you borrow against outstanding invoices immediately, rather than waiting 30-90 days for customers to pay. The finance provider advances 70-90% of the invoice value upfront and releases the balance (minus their fee) when the customer pays.
Two forms exist: factoring (the provider manages your credit control and collects from customers — visible to your customers) and invoice discounting (you manage collections yourself — invisible to customers). We find invoice discounting is preferred by companies that want to maintain direct customer relationships.
Invoice finance works when you have a strong debtor book with reliable customers who pay on time. It does not work when your debtors are disputed, concentrated in one customer, or unlikely to pay. The finance provider assesses your debtor quality, not your company’s balance sheet, which is why it is available to companies that banks have turned down.
Typical cost: 1-3% of invoice value per month plus a service fee. We advise comparing total cost carefully because the fee structures vary significantly between providers.
Asset-Based Lending: Borrowing Against What You Own
Asset-based lending (ABL) uses the company’s assets as security for a loan or revolving credit facility. The assets can include: equipment and machinery, commercial property, stock/inventory, and the debtor book. ABL facilities often combine several asset classes into a single facility.
We see ABL used by manufacturing, construction, and distribution companies that have valuable physical assets but fluctuating cash flow. The lender values the assets and advances a percentage (typically 50-80% depending on the asset type). The company continues to use the assets while the facility is in place.
ABL works when the company has unencumbered assets with identifiable value. It does not work when assets are already charged to another lender (check your existing debenture) or when the assets are specialised and have low resale value.
Refinancing Existing Debt
If your current lender’s terms are unsustainable (high interest, short repayment period, covenant breaches), refinancing with a different lender can restructure the debt on better terms. This is not new borrowing — it is replacing one facility with another that the business can actually service.
We advise directors to explore refinancing before considering more exotic funding options. If the business is viable but the debt structure is wrong, fixing the structure is cheaper and less disruptive than injecting new capital on top of bad debt.
When Funding Is Not the Answer
We are direct about this because we see directors borrow their way into worse positions:
If the business loses money every month, new funding delays insolvency but does not prevent it. You will exhaust the new capital and end up with a larger total debt.
If you are borrowing to pay tax debts, a Time to Pay arrangement with HMRC is free and does not add a new creditor. Borrowing commercially to pay HMRC replaces a patient creditor (HMRC on TTP) with an impatient one (a lender who charges interest and enforces faster).
If you are borrowing to fund drawings or dividends, the business cannot support your extraction level. Reduce your drawings before borrowing.
If the company is already insolvent, new borrowing that you know the company cannot repay creates wrongful trading exposure. You are incurring a debt you know the company cannot service, which is exactly what section 214 scrutinises.
The test is always: will this funding solve the problem, or will it postpone it while adding cost? We advise directors to answer this question honestly before signing any new facility. If the answer is “postpone,” the right route is not funding — it is insolvency advice.
How to Choose the Right Funding Option
Cash-flow timing gap with strong debtors: Invoice finance
Valuable unencumbered assets: Asset-based lending
HMRC debt specifically: Time to Pay (free, no new borrowing)
Existing debt on bad terms: Refinancing
Fast, flexible, short-term: Merchant cash advance or alternative lending
Growth capital, willing to give up equity: Equity investment
Business model broken, trading losses: None. Seek insolvency advice.
Company Debt connects directors with licensed insolvency practitioners who can assess whether funding or formal insolvency is the right route. A free, confidential consultation will clarify which option fits your company’s actual position.
How We Wrote This Article
This article was written by the Company Debt editorial team based on current UK SME lending market information, British Business Bank funding guidance, HMRC Time to Pay procedures, and practical experience from funding and restructuring cases handled by licensed insolvency practitioners in our network. The article was reviewed by Chris Andersen, a licensed insolvency practitioner regulated by the IPA.
Company Debt is a commercial service that connects business owners with insolvency professionals. We may receive a fee when you engage a practitioner through our service. This does not influence our editorial content or recommendations.
FAQs About SME Funding Options
Can I get funding if my company is in financial difficulty?
Some options are available: invoice finance assesses your debtors, not your balance sheet. Asset-based lending uses your assets as security. HMRC Time to Pay is free and available to struggling businesses. Traditional bank loans are unlikely if the company is already insolvent.
Is invoice finance expensive?
Typical costs are 1-3% of invoice value per month plus a service fee. Compare this against the cost of not having cash flow — lost supplier discounts, late payment penalties, HMRC surcharges, and the operational disruption of cash-flow crises. For many companies, invoice finance is cheaper than the alternative.
Should I borrow to pay HMRC?
Usually not. HMRC’s Time to Pay arrangement is free, charges lower interest than commercial lenders, and does not add a new creditor. Borrowing commercially to pay HMRC replaces a relatively patient creditor with a less patient one. Try TTP first.
Sources
British Business Bank — SME funding options and Start Up Loans programme
HMRC — Business Payment Support Service and Time to Pay guidance
UK Finance — invoice finance and asset-based lending market data
