6 minutes Understanding Your Funding

Overview

Choosing between SAPI's payment-linked financing and a traditional bank loan depends on your business needs, timeline, credit profile, and cash flow patterns. This guide provides an honest comparison to help you make the right choice.

Side-by-Side Comparison

Feature	Payment-linked (SAPI)	Traditional Bank Loan
Application time	10-15 minutes online	1-3 hours (extensive paperwork)
Decision time	24-48 hours	2-8 weeks
Funding speed	1-2 days after approval	1-2 weeks after approval
Total time to funds	3-5 days	3-10 weeks
Cost	Factor rate 1.15-1.50 (~25-60% APR equivalent)	6-15% APR
Repayment structure	Flexible (% of daily sales)	Fixed monthly payment
Approval criteria	Payment processing history	Credit score, financials, collateral
Personal guarantee	Usually required	Usually required
Collateral	Floating charge on assets	Often required (property, equipment)
Amount available	£10,000-£500,000	£10,000-£1,000,000+
Typical advance	£20,000-£50,000	£50,000-£250,000
Term length	Variable (6-18 months typical)	Fixed (1-5 years)
Early repayment	No penalty, may get discount	Often has penalties
Credit score impact	Reported to business credit agencies	Reported to personal and business credit
Best for	Fast access, variable revenue, flexible repayment	Lowest cost, stable revenue, patient timeline

When to Choose Payment-linked Financing

You Need Capital Quickly

Scenario: Peak season is in 3 weeks. You need £15,000 for inventory now.

Bank loan: 4-8 week approval = miss the opportunity
Payment-linked: 3-5 days to funding = capture the opportunity

Winner: Payment-linked (even at higher cost, the opportunity ROI justifies it)

Your Revenue is Variable or Seasonal

Scenario: Event catering business. Revenue in summer: £20k/month. Revenue in winter: £5k/month.

Bank loan: £2,000/month payment regardless of season = 40% of revenue in winter!
Payment-linked: 15% repayment adjusts to revenue = £3,000 in summer, £750 in winter

Winner: Payment-linked (prevents cash flow crises during slow periods)

You Don't Qualify for Bank Lending

Common reasons:
- Limited UK trading history
- No collateral (don't own property/equipment)
- Personal credit score issues
- Non-traditional business model

Bank: Declines application
SAPI: Assesses based on payment processing strength, may approve

Winner: Payment-linked (only option available)

Cash Flow Flexibility is Critical

Scenario: You're growing fast but unpredictably. Some weeks £8k revenue, some weeks £2k.

Bank loan: Fixed payment adds stress during slow weeks
Payment-linked: Automatically adjusts, no stress

Winner: Payment-linked (worth the cost for peace of mind and cash flow protection)

When to Choose a Bank Loan

You Qualify and Have Time

Scenario: Need £30,000 for equipment. Purchase can wait 2 months. Good credit, profitable business, can provide financial statements.

Bank loan: 8-week process, 8% APR, £320/month payment
Payment-linked: 3-day process, 1.35 factor rate (~40% APR equivalent), variable payment

Over 12 months:
- Bank: ~£3,840 total interest
- SAPI: ~£10,500 total cost (£30k × 1.35 = £40,500)

Savings with bank: £6,660

Winner: Bank loan (if you have time and qualify)

Your Revenue is Stable and Predictable

Scenario: B2B business with contracts. Reliable £15k/month revenue.

Bank loan: £2,000/month payment = 13% of revenue (affordable and predictable)
Payment-linked: 15% of sales = ~£2,250/month (automatic but costs more)

Winner: Bank loan (stable revenue makes fixed payments safe, save on cost)

You Need Long-Term, Large Financing

Scenario: £200,000 for business expansion over 3-5 years.

Bank loan: Designed for large, long-term needs (£200k+ over 3-5 years)
Payment-linked: Better for short-term working capital (£10k-100k over 6-18 months)

Winner: Bank loan (product fit for use case)

Cost is Primary Concern

Scenario: Need £25,000. Qualify for 9% APR bank loan. Patient about timing.

Bank loan 9% APR over 2 years: ~£2,375 interest
Payment-linked 1.30 factor: £7,500 cost

Savings: £5,125 with bank loan

Winner: Bank loan (significantly cheaper if you qualify)

Hybrid Approach: Using Both

Some businesses use payment-linked and bank loans for different purposes:

Bank loan for:
- Long-term investments (equipment, property, major expansion)
- Larger amounts
- Predictable costs you can afford with fixed payments

Payment-linked for:
- Short-term working capital (inventory, cash flow gaps)
- Seasonal needs (stock up before peak season)
- Opportunities requiring immediate capital
- Bridging gaps between bank loan payments and revenue

Example:
- Bank loan: £100,000 over 3 years for shop fit-out (fixed £3,500/month)
- SAPI advance: £20,000 for holiday inventory (flexible repayment, paid off in 6 months)

Decision Framework

Ask yourself:

1. How urgently do I need the capital?

Within days: Payment-linked
Within weeks/months: Bank loan may work

2. Can I afford fixed monthly payments?

Revenue is stable, yes: Bank loan saves money
Revenue varies, not sure: Payment-linked provides safety

3. Do I qualify for bank lending?

Good credit, financials, collateral: Bank loan likely cheaper
Credit issues, no collateral, short history: Payment-linked may be only option

4. What's the ROI of the capital?

High immediate ROI (inventory for peak season, equipment that doubles capacity):
Payment-linked's speed may outweigh cost

Low/slow ROI (general operational costs, debt consolidation):
Bank loan's lower cost is more important

5. How long will I need the capital?

Short-term (6-12 months): Payment-linked is designed for this
Long-term (2-5 years): Bank loan is more suitable

Real Examples

Scenario A: Restaurant Stocking for Christmas

Need: £15,000 for food/beverage stock in November
Timeline: Needed in 2 weeks (Christmas bookings coming in)
Revenue: £30k in December, £10k in January

Analysis:
- Bank loan: Would take 6 weeks (too late for Christmas)
- Payment-linked: 3 days to funding (captures Christmas revenue)

ROI: Christmas revenue covers advance cost multiple times over

Choice: Payment-linked (speed is critical, high ROI justifies cost)

Scenario B: Retail Shop Expansion (New Location)

Need: £100,000 for second location fit-out
Timeline: 3-6 months acceptable
Revenue: Stable £25k/month

Analysis:
- Bank loan: £100k at 10% APR over 3 years = £116k total (~£3,200/month)
- Payment-linked: £100k at 1.35 factor = £135k total (~£7,500/month if repaid in 18 months)

Savings: £19,000 with bank loan

Choice: Bank loan (large amount, stable revenue, time available, huge cost savings)

Scenario C: E-commerce Business Scaling Fast

Need: £40,000 for inventory (fast-selling product)
Timeline: Immediate (supplier requires payment in 7 days)
Revenue: Growing 20%/month, currently £35k/month

Analysis:
- Bank: Can't wait 6 weeks
- Payment-linked: 3-5 days, flexible as revenue grows

Choice: Payment-linked (speed critical, growing revenue means faster repayment than estimated)

Questions to Ask Lenders

When comparing options, ask:

SAPI (or other alternative lender):
- What's the factor rate?
- What's the total repayable amount?
- What percentage of sales will be collected?
- How long will repayment likely take?
- Are there early settlement discounts?
- What happens if my sales drop significantly?

Bank:
- What's the APR (all-in, including fees)?
- What's the monthly payment?
- Can I afford this payment during slow months?
- Are there early repayment penalties?
- What collateral is required?
- How long until funding?

Frequently Asked Questions

Q: Can I have both a bank loan and a SAPI advance?
A: Yes, if both lenders agree and your cash flow supports both repayments. Disclose existing debts when applying.

Q: Should I use payment-linked to pay off a bank loan?
A: Generally no—you'd be replacing cheaper debt (bank loan at 8-12%) with more expensive debt (factor rate equivalent to 25-60% APR). Only if the fixed bank payment is causing severe cash flow crises and payment-linked flexibility prevents business failure.

Q: My bank declined me—is SAPI automatically a better option?
A: Not necessarily "better," but SAPI's approval criteria differ from banks. Even if declined by banks, consider SAPI if you need capital and can afford the cost.

Q: Can I get a bank loan after repaying a SAPI advance?
A: Yes. Successfully repaying a payment-linked advance demonstrates repayment ability and may improve your creditworthiness for bank lending. Some businesses use SAPI for initial growth, then refinance with cheaper bank loans once established.

Q: Which option builds my credit better?
A: Both report to business credit agencies. Successfully repaying either improves business credit. For personal credit, banks may report to personal bureaus (especially for sole traders), while SAPI typically reports only if personal guarantees are enforced.

Q: What if I already have other debts—which should I prioritize?
A: Prioritize: (1) secured debts (mortgage, asset finance), (2) tax debts (HMRC has strong enforcement powers), (3) high-interest debts, (4) payment-linked advances, (5) lower-interest loans. Seek advice from Business Debtline (0800 197 6026) if juggling multiple debts.

Need Help?

Comparing options: [email protected]
Understanding payment-linked: +44 20 3868 4990
Independent financial advice: Consult an accountant or financial advisor
Debt priority advice: Business Debtline (0800 197 6026)