Offer finance to customers as a small business

Why offering finance can lift UK sales now

Customer finance is moving centre stage for UK SMEs. Lending to small firms has picked up, interest costs have eased slightly, and consumers continue to use credit to smooth purchases. Put simply, merchants that offer finance at checkout can convert more baskets, protect margins, and align with how Britons prefer to pay.

Recent data matters. Gross lending to UK SMEs by the main retail banks reached nearly £4.6 billion in Q1 2025, up 14% year on year, with the smallest firms seeing a 30% rise in lending focused on short-term needs and cashflow. Challenger banks strengthened their position through 2024, accounting for roughly 60% of lending to small businesses. Importantly for affordability, the effective interest rate on new SME loans dipped to around 6.75% in March 2025. On the consumer side, new finance volumes grew 13% in March 2025 versus a year earlier, supporting retail spending across categories from home improvements to specialist services.

What does this mean on the shop floor? If you sell higher-ticket items or services, presenting clear monthly repayments or buy now pay later options can reduce sticker shock and accelerate decisions. Finance transforms a £1,200 purchase into a manageable series of payments. For the business, it can preserve cashflow, raise average order values, and create loyalty when customers return for upgrades.

The market is also more diverse. Beyond the high street giants, challenger banks, specialist lenders, and Community Development Finance Institutions have widened access, particularly for customers underserved by mainstream providers. Government focus on access to finance and inclusive practices reinforces this shift. For small businesses, the message is straightforward - partner well, explain clearly, and ensure your offer is responsible and compliant.

Understanding APR is not just about percentages - it is about the pounds and pence your customer will actually pay.

If you are weighing up whether to launch finance at point of sale, take a measured approach. Choose products that fit your price points and customer profiles. Model the cost of subsidy if you offer promotional APR. Train staff to articulate affordability, credit checks, and alternatives without pressure. The goal is not to push credit but to make good purchases possible at the right time.

Who will benefit most

Small retailers with products over £250 and service businesses with projects over £500 tend to see the strongest uplift from customer finance. Think independent bike shops, home improvement contractors, dental practices, and specialist e-commerce brands selling durable goods. If your customers ask about instalments, postpone purchases due to cashflow, or shop around for deals, a finance option can remove friction.

Businesses with seasonal revenue or longer lead times benefit too. Finance can stabilise cashflows by converting peaks of demand into steady settlement from a finance partner. If you already use invoice finance, asset finance, or a working capital facility, adding point-of-sale finance complements your wider funding mix.

For customers with thin credit files or limited mainstream options, signposting to inclusive lenders or responsible alternatives is valuable. Clear, jargon-light explanations and transparent costs improve trust and uptake across diverse communities.

Know the terms that matter

• APR - Annual Percentage Rate that captures interest and compulsory charges to show the annual cost of borrowing.

• Representative APR - The advertised APR that at least 51% of accepted applicants are expected to receive.

• Interest-free credit - 0% interest for a set term, often subsidised by the merchant via a fee to the lender.

• BNPL - Short-term instalments that may be interest-free but can include late fees. Terms vary by provider.

• Soft vs hard search - A soft credit check does not impact a credit score; a hard search may.

• FCA regulation - Consumer credit in the UK is regulated. Promotions, pre-contract information, and affordability assessments must comply.

• Subsidy cost - The fee you pay the lender to offer a promotional or 0% rate to customers.

• Early settlement - Rules and any fees if a customer repays early.

• Cooling-off period - The time in which a customer may withdraw from the agreement, depending on product type.

• CDFI - Community Development Finance Institution providing inclusive finance where mainstream lenders may not.

Your main routes to offer finance

1. 0% interest credit at checkout

   • Best for mid to high-ticket items where you can fund a subsidy. Drives conversion and premium upsells. Requires clear disclosures and staff training.

2. Low APR instalment loans

   • Spreads cost over 12-60 months at a competitive rate. Good for customers seeking predictable payments. Often delivered via a broker panel.

3. BNPL short-term instalments

   • Friction-light onboarding for smaller baskets. Watch late fee structures and ensure marketing remains balanced and compliant.

4. Deferred payment promotions

   • Buy now, pay later with a set deferral then instalments. Useful for seasonality or pre-orders. Model reversion APR carefully.

5. Revolving credit lines via store cards

   • Encourages repeat purchases. Strong controls needed to avoid persistent debt. Consider if your brand has frequent buying cycles.

6. Referrals to inclusive lenders or CDFIs

   • For customers declined by mainstream options, signpost responsible alternatives to maintain trust and inclusivity.

What it costs, what you gain, what to watch

Who qualifies and what lenders look for

Eligibility has two sides - your business as the merchant and your customers as borrowers. As a merchant, lenders assess your trading history, chargeback rates, sector risk, and average order value. They also review your sales journey to ensure affordability checks and disclosures are delivered consistently online and in store. Newer businesses can still qualify where the model is sound and volumes are realistic, particularly with support from challenger banks or specialist lenders.

For customers, criteria vary by product. Expect identity verification, credit checks, and income assessments tailored to the loan type and value. Interest-free and BNPL options may start with soft searches, but larger instalment loans typically use hard searches and proof of income. Inclusive pathways exist. CDFIs provide options for customers who face barriers with mainstream lenders, while responsible brokers can route applications to suitable providers. Across the UK, government focus on access to finance and low forecast write-off rates suggest a supportive environment, but decisions remain affordability-led.

From setup to first funded sale

1. Define target price points and finance products

2. Select a regulated broker or lender panel partner

3. Model subsidy cost and expected conversion uplift

4. Integrate checkout journey and staff training

5. Prepare compliant marketing and disclosures

6. Pilot with tight QA and review declines

7. Monitor AOV, approval rates, and arrears monthly

Trade-offs at a glance

Read this before you switch it on

Finance should reduce friction, not create pressure. Keep marketing balanced and avoid framing credit as effortless or universal. Publish clear APRs, total repayable amounts, and cooling-off rights, and ensure staff can explain soft vs hard searches in plain English. Monitor declines for bias signals and consider signposting to inclusive providers when appropriate. Track outcomes monthly - approval rates, arrears, and complaints - and adjust product mix if risk indicators rise. Finally, sense-check your subsidy budget against the real uplift in conversion and margin to avoid paying for sales you would have won anyway.

If finance is not the right fit today

1. Offer staged payments via invoice with clear terms

2. Promote deposits plus milestone billing on projects

3. Provide layaway or reservation schemes for limited stock

4. Signpost external personal loans without affiliation

5. Explore B2B terms for trade customers with credit checks

FAQs

Q: Will offering customer finance hurt my margins? A: Not if you model it carefully. Subsidy costs on 0% credit can be offset by higher conversion and larger baskets. Start with targeted products and track payback.

Q: Are interest rates becoming more affordable in 2025? A: Data shows a modest easing. Effective rates on new SME loans were around 6.75% in March 2025. Consumer pricing varies by profile and product, so disclose representative rates clearly.

Q: What if my customers have thin or imperfect credit files? A: Consider a mix of options and responsible referrals. CDFIs and inclusive lenders support customers underserved by mainstream banks, helping broaden access while staying compliant.

Q: Do I need FCA authorisation? A: Certain activities are regulated. Many SMEs work with an FCA-authorised broker that manages compliance and lender relationships. Ensure your promotions and sales journey meet regulatory standards.

Q: How big should the typical financed basket be? A: Many merchants see strong results on baskets between £250 and £5,000. Choose terms that match your price points and customer affordability.

Q: Are challenger banks relevant to point-of-sale finance? A: Yes. Challenger banks hold a growing share of SME lending and partner across finance ecosystems, expanding choice and potentially improving approvals and service levels.

Get moving with a brokered panel

If you are ready to explore, map your product price bands and preferred terms, then speak to a UK-based retail finance broker that can curate a lender panel and integrate your checkout journey. At Kandoo, we connect UK small businesses with a broad set of consumer finance options, helping you pilot quickly and scale with confidence while keeping compliance front and centre.

Important information

This guide provides general information for UK small businesses and is not financial advice. All finance is subject to status, affordability, and lender criteria. Always seek professional advice and review FCA guidance before launching customer finance.