Funding requirements for trading businesses change as the business matures. A three-year-old company with £800,000 turnover has different needs from a twenty-year-old firm with £15 million turnover, and both differ again from a business preparing for acquisition or expansion. Trading business finance covers the spectrum of debt products designed for businesses that generate trading revenue, distinct from investment finance secured against property or assets alone.
The main product types
Term loans provide a fixed sum repaid over an agreed period, typically 3 to 10 years for trading businesses. Rates on the mainstream commercial market sit at 6% to 10% for established businesses with strong financials. Revolving credit facilities allow businesses to draw and repay against a set limit, with interest charged only on drawn balances. Overdrafts remain common for smaller working capital needs, though pricing has tightened since 2022.
Growth capital and acquisition finance address specific transactions rather than general working capital. Cashflow lending, secured against future trading revenue rather than assets, has become more available since the growth of challenger banks. Allica Bank, Shawbrook, Recognise Bank, and OakNorth all now offer cashflow-based commercial term loans up to £5 million, reflecting a shift away from purely asset-backed commercial lending.
How lenders assess trading businesses
The core underwriting focus is debt service coverage, typically expressed as the EBITDA-to-debt-service ratio. Most commercial lenders require 1.25x to 1.5x cover on total debt service including the proposed new facility. Two to three years of filed accounts are standard, with recent management accounts for the current trading year. Businesses with volatile earnings, declining trends, or heavy customer concentration face additional scrutiny and often higher pricing.
Since the 2020 PRA guidance updates on commercial lending, mainstream banks have tightened treatment of businesses with post-pandemic bounce-back loans still outstanding, though specialist commercial lenders take a more case-by-case view. Personal guarantees from directors are standard on commercial term loans for owner-managed businesses, typically covering 20% to 100% of the facility depending on lender risk appetite and the strength of the underlying business.
Matching product to funding need
Short-term working capital fluctuations fit revolving facilities or invoice finance rather than term debt. Capital expenditure on plant, vehicles, or equipment fits asset finance rather than general commercial loans. Acquisitions, MBOs, and larger growth transactions typically combine term debt with mezzanine or equity components. Refinancing multiple existing facilities into a single structured deal often reduces total cost even before considering rate improvements.
Businesses seeking commercial finance for the first time frequently approach their existing bank as the default first port of call. This is often the right starting point, though the mainstream market represents perhaps 40% of the available commercial funding options in 2026. Specialist banks, challenger banks, and non-bank commercial lenders make up the balance and often provide better terms for specific business profiles that the mainstream banks decline or price poorly.
AM Commercial Finance arranges trading business finance across the commercial lending market. To discuss a working capital, term loan, or growth funding requirement, phone 01604 552100 (Monday to Friday, 9am to 6pm) or email info@amcommercialfinance.com. The initial conversation is typically 20 to 30 minutes and free of charge.
Commercial Investment Finance Invoice Finance Unsecured Business Finance