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Business loan for marketing
Marketing represents one of the most efficient avenues for business growth, but finding the capital needed for marketing budgets can be difficult.
In the right circumstances, debt finance can provide a solution, with tailored business loans for marketing, offering the funding needed to propel your business forward.
Using Business Loans for Marketing
When taking out a business loan, it’s essential that the cost of the loan is balanced against the future impact on the business. Business loans used for growth, for example, are best suited when there is a proven demand for that growth and a qualified return on investment (ROI).
Marketing returns can be difficult to quantify, changing the framing of a loan from one supported by a reliable increase in profits to one that is more speculative.
This increases the risk, both for your business and the lender. Therefore it’s vital to evaluate the marketing plan thoroughly when exploring business loans for marketing applications, balancing risk and reward with data-driven and conservative forecasting.
At Clifton Private Finance, our business finance advisers will work with you to develop a comprehensive overview and understanding of your expected marketing strategy returns, ensuring the costs and risks of a loan are not inappropriate.
Types of Business Loans for Marketing
Unlike many other types of business growth investment, marketing is rarely best suited to a lump-sum loan. These single payment capital loans, like traditional secured and unsecured business loans, begin generating interest from the outset - funds that remain in an account earmarked for future use become costly, adding costs while they sit unused.
For marketing, a better structure typically lies with revolving credit facilities or staged loans. These provide capital as and when needed, reducing the interest accumulated by holding back credit in reserve with the lender. Payments are then aligned with your marketing strategy.
Analysing your marketing strategy and ensuring the finance is tailored to fit is a key part of obtaining a business loan for marketing.
Options include:
Unsecured Loans
A basic unsecured business loan is typically used when funding requirements are lower, often <£25,000. Rates and terms are based mainly on your business credit rating, and a director’s guarantee may also be required.
Unsecured loans tend to be more expensive than secured options and are a poor fit when trying to sustain a lengthy marketing plan. However, they can be useful when capital is required for smaller single-stage marketing projects, such as the creation of initial branding for startup companies.
Secured Loans
A secured (also known as asset-based) loan provides the lender with risk mitigation through the use of assets as security. While business-owned property is typically cited as the premium security, other assets, such as high-value machinery or vehicles, may also be used as collateral.
Secured loans are often cheaper than unsecured counterparts and often provide larger sums of capital, from £25,000 to £500,000+. They are ideal for businesses looking to fund significant single-project marketing boosts, such as major project launches.
Staged Loans
A staged secured loan reduces interest-based costs by releasing funds at pre-arranged checkpoints along the marketing plan timeline. This has the effect of providing capital exactly when needed, ensuring that interest isn’t being generated by a large sum that’s unused for a period.
Staged loans are best when your marketing plan has a well-defined structure with key phases when capital injections are required.
Examples include:
- Digital marketing growth - A campaign may begin with audience research and A/B testing, followed by targeted advertising on different platforms based on the results .
- International reach - Marketing that’s already proven successful domestically may be expanded to new markets, following a pattern of localisation and translation, and individual regional promotion.
- Trade shows and exhibitions - Funding stages may include creation of initial materials, pre-event promotion, the event itself, and post-event follow-up campaigns.
- Rebranding - Multi-phase rebranding can involve research, design, material creation, and public campaign stages.
Revolving Credit Facilities
Marketing budgets typically involve the ongoing allocation of funds for monthly or quarterly application, and many marketing campaigns are flexible and reactive, adapting to new data and shifts in audience response. In these situations, a set lump-sum will struggle to provide the agility required - it will either be too large and costly or too small and constricting.
Revolving credit facilities overcome these obstacles, providing a secondary line of funding that can be utilised whenever needed.
Business secured revolving credit facilities are similar in structure to well-known unsecured facilities such as credit cards or bank account overdrafts. A credit limit is provided, and funds can be drawn as necessary and repaid at a flexible pace.
This ‘dip in and dip out’ system means interest is only accrued on money that is actually used and provides the peace of mind that money is available for use without further application delays.
Revolving credit facilities provide you with the financial backing you need to seize opportunities and adjust your marketing campaigns in line with their effectiveness.
Specialist revolving credit facilities are available that are tailored to your business sector and needs, providing larger credit limits and lower costs than company credit cards or basic business account overdrafts. Speak to a Clifton Private Finance expert to learn more.
Lenders and Business Loans for Marketing
When making an application for a loan, lenders will evaluate the business to ensure that the loan obligation doesn’t put too much pressure on cash flow. This underwriting can be difficult for businesses looking to obtain loans purely for speculative marketing use, as lenders may want evidence that the marketing spend will produce measurable revenue.
At Clifton Private Finance, we work directly with decision makers at the lenders to discuss your application and present your business case effectively to maximise acceptance.
When evaluating loans for marketing, lenders will consider:
- Business use case and marketing strategy planning
- Evidence of previous marketing success
- Existing conversion rates and sector benchmarks
- Customer acquisition cost (CAC)
- Customer lifetime value (LTV)
- Current cash flow and debt service coverage ratio (DSCR)
Presenting strong supporting documentation and data-driven evidence will help secure the loan or credit facility, access competitive interest rates, and increase total loan size.
The Risks of Marketing Loans
It is not only the lenders who reasonably exercise caution when using business loans for marketing. Using debt finance to fund marketing spend requires careful management and evaluation for business owners and CFOs.
Considerations include:
- Overestimating campaign success - Optimistic figures can inflate justifications for debt finance, misaligning the cost of the funding against the real gains once the campaign has run its course. Assuming that a marketing campaign will grow the business at a faster rate or to a greater level than is actually achieved can turn a seemingly advantageous loan into a difficult burden. Conservative, data-led forecasting is preferred for this reason.
- Scaling advertising before proving conversion rates - Growing existing marketing campaigns too early can lead to a mismatch of scale or poorly targeted sectors. Healthy marketing expansion relies on reactive funding that evaluates real conversion data, rather than large pools of costly capital. Revolving credit facilities help support efficient scaling.
- Over-reliance on debt finance - Long-term marketing campaigns that chain into new initiatives can cause an over-reliance on funding. This is especially true with revolving credit facilities, where the ease of growth and instant access to funds can lead to over-leveraging credit. Careful management and continuous balancing of debt costs vs. marketing profitability are essential.
- Stubborn adherence to failing plans - When debt finance is supporting marketing budgets, it is too common for the debt obligation to cloud judgement. This can lead to marketing and budget decisions to be made based on emotion rather than data points, the ‘we started, so we’ll finish’ mentality. When marketing plans prove ineffective, the business should evaluate closing down debt facilities and repaying funds even if it incurs additional losses, rather than continue down an ineffective path.
Your Clifton Private Finance adviser will continue to support you throughout the lifetime of your facility, providing insight and options at every juncture. In the event of unexpected developments, our expertise can help you maintain control and avoid future complications.
Marketing Loans FAQ
Q: Can I Get a Business Loan for Marketing?
A: Yes. There are a range of business loans that are suitable to support marketing campaigns, though they are best suited to initiatives that are based on predictable returns. Lenders will look for evidence that the marketing spend will generate increased profits that can cover loan repayments.
Q: What Type of Loan is Best to Support Marketing Campaigns?
A: Because of the ongoing nature of marketing budgets, lump-sum loans can become costly, generating interest while capital sits unused. Revolving credit facilities or staged loans often present a better structure, allowing capital to be drawn as needed.
Your Clifton Private Finance adviser will discuss your specific needs and compare the costs of different loan options to help you make an informed, cost-effective decision.
Q: Do Lenders Approve Loans for Advertising and Marketing?
A: In the right circumstances, lenders are in place to provide both lump-sum loans and revolving credit facilities to businesses looking to expand their reach with new marketing and advertising initiatives.
Lenders will consider factors such as previous marketing success or industry metrics, as well as evaluating your customer acquisition data and revenue forecasts.
Q: Are Marketing Loans Risky?
A: Because the return on marketing spend is often speculative, loan applications that rely on a successful marketing campaign to meet obligations may be considered high risk and rejected.
However, your business model, historical marketing performance data, and DSCR will all help mitigate that risk. Businesses that can comfortably service a loan with current income even if the campaign does not perform will be more likely to secure funding.
Q: Does Startup Funding Exist for Marketing?
A: Yes. Marketing is an essential part of most startup business models and forms part of an expected business plan. Smaller unsecured loans that are typically offered to startup businesses (often with a director’s guarantee) are appropriate for initial marketing spend.
Larger marketing campaigns, however, may be more difficult to fund without a proven history and established customer base.
Q: Are Revolving Credit Facilities Suitable for Marketing?
A: Yes. As many marketing campaigns are ongoing initiatives, revolving credit facilities are well-placed to provide the funding needed to meet needs.
Industry-specific, specialised and secured revolving credit facilities offer lower rates and fees than unsecured options (such as credit cards) and are better able to meet the needs of long-term marketing budgets.
Q: What Do I Need to Secure a Marketing Loan?
A: Lenders will want to see realistic, conservative forecasting and prior metrics, such as customer acquisition cost (CAC), lifetime value (LTV), conversion rates, and previous campaign performance.
Well-documented business financials and a strong business credit rating will help secure the loan. The business finance team at Clifton Private Finance will help you with your application, determining how best to present your data to maximise the chance of a loan acceptance.
Business Loans for Marketing with Clifton Private Finance
Clifton Private Finance is a whole-of-market business finance broker. Our access to the full network of banks and specialist lenders provides you with the support you need to secure a cost-effective marketing loan.
Your Clifton Private Finance adviser will work with you to explore options, develop your application, and compare loan deals to find the structure that’s right for your business.
To discuss your marketing requirements and get expert advice, book a consultation with Clifton Private Finance today.
