The most expensive financing mistake is matching the wrong instrument to the need: funding a long-term asset with short-term money, or covering an ongoing shortfall with finance designed to bridge a defined gap. Each product below exists for a specific situation, and using it outside that situation is where businesses get into difficulty.
Work out which problem you actually have before comparing rates.
Working capital and overdraft
For the gap between paying suppliers and being paid by customers. Repaid within months, and appropriate where the cash cycle is the problem rather than the business model.
The warning sign is needing it continuously. A facility that is never repaid is funding losses rather than timing, and that is a different problem entirely.
Asset and equipment finance
For buying equipment or vehicles, secured against the asset and repaid over its useful life. This is the right match for a long-term purchase.
Only finance an asset with work lined up for it. Borrowing against equipment that then sits idle turns an affordable instalment into an unaffordable one.
Invoice and purchase order finance
Advances against money you are owed or an order you hold, settled when the customer pays. Useful for suppliers on long payment terms and for fulfilling an order larger than you can fund.
Check whether the arrangement is recourse or non-recourse, because in many cases you repay even if the customer never does.
Bridging finance, and what everything costs
Short-term funding covering a defined gap with a known end date. Rates are high because the period is short, which is acceptable for a genuine bridge and ruinous when rolled repeatedly.
Convert every quote into the total cost over the actual period, including initiation and service fees, and compare it against the margin on the work being financed. Credit providers must be registered, and you can verify a provider with the Financial Sector Conduct Authority. Development finance options are administered through the Small Enterprise Development and Finance Agency.
Frequently asked questions
How do I choose the right finance?
Match the term of the finance to the term of the need. Short-term money for timing gaps, long-term finance for assets.
What does it mean if I always need my overdraft?
That you are funding losses rather than a timing gap, which is a business model problem rather than a finance one.
When is invoice finance appropriate?
When customers pay on long terms or an order is larger than you can fund. Check whether you repay if the customer defaults.
Why is bridging finance expensive?
Because the period is short. That is acceptable for a genuine bridge with an end date, and damaging when rolled repeatedly.
How should I compare offers?
Convert every fee and interest charge into the total cost over the actual period, then compare it with the margin on the work.
Further reading
Originally published in July 2018. Updated September 2026 to compare the main financing instruments and when each is the wrong choice.
