Are there restrictions on what I can use business finance funds for?

Yes. Permitted uses depend on the product (for example, unsecured loan, invoice finance, asset finance), the lender’s policy, and any scheme rules. Working-capital loans usually allow marketing, staffing, and inventory. Asset-tied, fit-out, and tax funding are purpose-restricted. Personal use, illegal activity, speculative investments, and residential property purchases are typically prohibited.

Can I pay staff wages or hire new employees with the funds?

Typically yes, using working-capital loans or revolving facilities. Ensure the term matches the period you need the support, and be prepared to provide payroll schedules or headcount plans if requested.

Can I purchase inventory or raw materials with business finance?

Yes under most working-capital products. Invoice finance can also help by advancing funds against receivables, supporting stock cycles and supplier payments.

What uses are usually prohibited by lenders?

Prohibited uses commonly include personal spending, illegal or sanctioned activities, speculative trading, residential property purchases, and sometimes dividend payments. Scheme-backed products may have additional restrictions.

Will I need to show evidence of how I used the funds?

Lenders may request invoices, supplier quotes, payroll records, or progress certificates (for fit-out). Keep an audit trail throughout the facility term to demonstrate compliant use.

Do government-backed loans like the Growth Guarantee Scheme have specific restrictions?

They typically allow broad business purposes but exclude residential property, personal spending, and illegal activities. Refinancing may be allowed if it meets scheme and lender criteria. Always review the lender’s final documentation.

Are there restrictions on what I can use the funds for (eg, marketing, staffing, inventory)?

Q: Can I use a business loan for marketing?

Often yes, under general working-capital facilities such as unsecured term loans or revolving credit. Asset finance and other purpose-bound products are not appropriate for advertising spend.

Short answer

Yes. In the UK, permitted uses of business finance depend on the type of funding, the lender or broker’s policy, and any scheme rules attached to the facility. Many products allow broad “working capital” use such as marketing, staffing, and inventory, but some finance is ring‑fenced for specific purposes (for example, asset finance or fit-out finance), and certain uses are prohibited across the board.

Always check the loan agreement for any “use-of-funds” clause, and keep an audit trail (quotes, invoices, payroll reports, receipts) to demonstrate the funds were used for the agreed business purpose. Best Business Loans does not provide credit; we help you connect with suitable UK finance providers so you can choose an option that fits your intended use.

Part 1 of 5: What business activities are typically allowed?

Most commercial lenders and brokers accept a wide definition of “working capital,” which includes marketing campaigns, staff costs, rent and utilities, inventory purchases, and supplier payments. Funds can also often be used to refurbish premises, invest in equipment or vehicles, or implement technology and sustainability upgrades. Where a product is flexible (for example, an unsecured business loan or revolving credit facility), the permitted use is usually broad provided it is wholly for business purposes.

Commonly allowed uses include funding growth (for example, launching a new product line), smoothing seasonal cash flow, or bridging payment gaps created by customer credit terms. Many providers also allow refinancing of existing business borrowing, subject to affordability and the lender’s policy on consolidating debt. Always confirm whether refinancing is “like‑for‑like” only, and whether any early settlement fees apply to existing agreements.

Even when uses are broadly permitted, lenders may ask what percentage will be allocated to each purpose (for example, 40% for inventory, 30% for payroll, 30% for marketing). Being specific helps the lender validate that the facility aligns with your business plan and cash flow forecasts. It also helps you choose the right product for the job, rather than forcing a specialised product to cover general expenditure.

Typical permitted uses at a glance

Working capital: marketing, staffing, inventory, rent, utilities, supplier payments.
Growth initiatives: sales enablement tools, website upgrades, product launches, recruitment.
Operational improvements: equipment, vehicles, software, energy efficiency upgrades.
Refurbishment and fit-out: subject to product type and supplier evidence.
Refinancing: consolidating existing business debt (provider‑dependent).

Part 2 of 5: Restrictions by finance type (what you can and can’t do)

Different products carry different conditions. The same sum used for “marketing” may be acceptable under an unsecured term loan but restricted under an asset‑linked agreement. Use the guide below to align your purpose with an appropriate facility.

Remember: each lender will have its own credit policy, sector appetite, and evidence requirements. Your offer letter or facility agreement is the definitive source of permitted uses and conditions precedent.

Unsecured term loans (general working capital)

Typically flexible for marketing, staffing, inventory, and everyday operating costs. Lenders may request a clear business purpose and a simple breakdown of spend for underwriting. Prohibited uses usually include personal expenditure, speculative investments, or non‑business property purchases.

Revolving credit facilities and overdraft alternatives

Designed for short‑term working capital rather than long‑term asset purchases. Common uses include covering payroll, bridging invoice gaps, topping up stock, and paying suppliers. Using a revolving facility for large, long‑life assets may raise concerns about mismatch between term and asset life.

Asset finance (hire purchase, finance lease)

Ring‑fenced strictly for acquiring the specified asset (for example, machinery, vehicles, equipment). Funds cannot be diverted to wages, marketing, or general bills. Expect the lender to pay the supplier directly once documentation and delivery are confirmed.

Invoice finance (factoring, invoice discounting)

Advanced against eligible receivables to support working capital and growth. Acceptable uses include payroll, stock replenishment, and supplier payments tied to sales cycles. Lenders may discourage using advances for non‑operational purposes like dividends or long‑term speculative projects.

Merchant cash advance (card takings)

Repayments flex with card sales, and funds are typically used for working capital, minor refurbishments, or short‑term growth initiatives. Providers usually stipulate business purposes only and expect spend to be aligned with improving trading. It’s less suited to large, long‑life capital expenditure.

Fit‑out finance and refurbishment funding

Restricted to the agreed fit‑out/refurbishment scope, with staged drawdowns against invoices and progress certificates. You may need contractor quotes, lease details, planning permissions, and proof of completion. Using funds for unrelated costs (for example, a marketing surge) is usually not permitted.

VAT and tax funding

Purpose‑limited products used to spread VAT, corporation tax, or self‑assessment liabilities. Lenders typically require visibility of the tax bill and payment schedule. Diverting these funds away from the designated bill breaches the agreement and risks default.

Growth Guarantee Scheme and other government‑backed loans

Generally broad business purposes are allowed, subject to scheme rules and lender policy. Prohibited uses often include residential property investment, speculative or illegal activity, and personal spending. Refinancing can be permitted but must meet eligibility criteria and demonstrate improved viability.

Commercial vehicle and equipment finance

Purpose‑bound to the asset, with the asset typically acting as security. Funds cannot be reallocated to unrelated operational costs. Some lenders allow soft costs (delivery, installation) within the same facility when itemised.

Refinance and consolidation

Often allowed to simplify cash flow or reduce costs, subject to affordability and full visibility of existing liabilities. Not all debt types can be refinanced, and arrears may limit options. Providers may require settlement figures and proof that proceeds are used to close the specified balances.

Part 3 of 5: Evidence lenders may ask for (and how to prepare it)

To satisfy “use-of-funds” conditions, be ready to show supplier quotes, purchase orders, or pro‑forma invoices for asset or fit‑out finance. For working capital loans, lenders may request a high‑level allocation (for example, marketing, payroll, stock) plus a cash flow forecast demonstrating affordability. For refinancing, settlement letters and statements for existing facilities are usually required.

Some lenders pay third parties directly (for example, equipment vendors) rather than advancing funds to your account. Others use staged drawdowns tied to milestones or cap the percentage released until proof of delivery is shown. Keep all documentation organised because lenders can perform post‑drawdown checks.

For marketing usage, a campaign plan and budget line items (media spend, creative, tooling) can help underwriters understand the ROI rationale. For staffing, provide payroll schedules or headcount plans that map to revenue forecasts. For inventory, purchase lists and supplier terms help evidence that stock cycles align with your working capital model.

Common conditions precedent

Signed facility agreement with a clear business purpose stated.
Quotes, invoices, or vendor details for asset or fit‑out spends.
Evidence of tax liabilities for VAT/tax funding products.
Insurance details where required (for example, asset protection).
Direct debit mandate and company bank statements.

Good practice for audit trails

Ring‑fence funds in your accounts software against budget lines.
Store receipts, contracts, and payroll proofs for at least the term of the facility.
Update cash flow forecasts whenever usage plans change.

Part 4 of 5: Using funds for marketing, staffing, and inventory — practical examples

Marketing: With an unsecured term loan or revolving facility, spending on PPC, SEO, events, brand creative, and sales enablement is usually allowed. Providers like to see a clear plan showing customer acquisition costs and expected payback. Using asset finance for ad spend would be inappropriate because the facility is restricted to the named asset.

Staffing: Most working‑capital facilities allow payroll, temporary staff, and recruitment costs. Match the loan term to the benefit period; for example, avoid using a long multi‑year loan for a short, seasonal staffing peak. If staffing costs underpin a refurbishment or expansion, ensure your forecasts account for onboarding and training lead times.

Inventory: Funding stock reorders, new SKU launches, or bulk‑buy discounts is routine for many lenders. Invoice finance can be especially effective where stock turns are driven by B2B receivables, because it aligns cash inflows with sales cycles. In sectors with pronounced seasonality (for example, hospitality), right‑sizing the facility limit can prevent over‑borrowing in quieter months.

Sector‑specific nuances

Hospitality: Many providers support working capital for menus, staffing, and refurb, but fit‑out funding will be tied to the schedule of works. If you run licensed premises, see our guidance on funding options for pubs to explore what lenders commonly support in this niche.

Manufacturing: Equipment upgrades are best matched with asset finance; consumables and raw materials typically sit under working capital facilities. Where you sell on terms, invoice finance can help avoid cash crunches between production and payment.

Retail and eCommerce: Inventory and marketing spend are usually permitted under flexible loans, while payment‑linked products like merchant cash advance can complement seasonal peaks. Track ROI granularly to ensure the facility drives profitable growth rather than masking margin issues.

Explore industry‑specific insights for venues and publicans here: pubs business loans and hospitality funding.

Part 5 of 5: How Best Business Loans helps you stay compliant and choose the right route

Best Business Loans is an independent introducer. We do not offer loans directly or provide regulated financial advice; we use AI‑driven matching to connect established UK businesses with suitable lenders and brokers based on your profile and intended use of funds.

Tell us what you want the finance for — marketing, staffing, inventory, refurbishment, equipment, or cash flow — and we’ll help you identify providers that are active in your sector and comfortable with that purpose. You remain in full control to compare options, review terms, and decide what’s best for your business.

To comply with “clear, fair, and not misleading” standards, we’ll always encourage you to review the full facility terms, including any use‑of‑funds restrictions, fees, and early settlement considerations. Borrowing costs money; ensure affordability and remember that missed payments may affect your credit profile and your ability to obtain future finance.

Fast, responsible next steps

Complete a Quick Quote with your intended use of funds and target amount.
Prepare basic evidence (for example, quotes, campaign budgets, staff plans, or stock lists).
Review matched options, discuss any restrictions with the provider, and select the route that fits your plan.

FAQ — Restrictions on use of funds

Can I use a business loan for marketing? Often yes, if it’s a general working‑capital facility. Asset‑tied products are not suitable for ad spend.

Can I pay staff wages with loan funds? Typically yes under working‑capital loans or revolving credit. Ensure the term matches the period you need the support.

Can I buy inventory with finance? Yes under most working‑capital products, and invoice finance can complement stock cycles for B2B sales.

What uses are usually prohibited? Personal spending, illegal activities, speculative investments, and residential property purchases. Some lenders also restrict dividend payments.

Will I need to prove how I spent the money? You may be asked for invoices, payroll reports, or supplier confirmations. Keep a clear audit trail throughout the term.

Key takeaways

Permitted uses depend on the product, provider, and scheme rules — check the agreement.
Marketing, staffing, and inventory are commonly allowed under working‑capital facilities.
Asset‑linked, fit‑out, and tax funding are purpose‑restricted and require evidence.
Keep documentation to prove compliant use of funds and support future applications.
We don’t lend; we match you with suitable providers to save time and improve fit.

Updated October 2025 — Information provided is general guidance, not financial advice. Eligibility, rates, and terms are set by lenders or brokers and may change. Only borrow what your business can afford to repay.