What is the best business funding for you will depend on your personal circumstances, your business circumstances and your approach to risk taking.
Although writing a business plan isn’t essential to secure funds, it is something I advise all my clients. At the very least it will give you clarity and enable you to focus on and achieve your business objectives.
So many of my clients have experienced that ‘chicken and egg’ situation, where we know we need to invest to grow but don’t have the time to generate the funds. This is where it makes sense to seek external finance. It could be that you’re a start-up and need extra administration, marketing or other support. Finance could make all the difference and enable you to generate more business and profits.
Here’s a breakdown of the funding available:
- Invoice discounting and factoring
Typically the financier gives you a percentage of the value of the invoice upfront, while you wait for payment. How much varies dependent upon the lender and industry sector.
- Invoice trading
Here lenders, unlike invoice discounting and factoring, allow you to select which invoices you use to take out finance.
- Venture capitalists
You’ll perhaps have some idea of how venture capitalists work, if you’ve watched BBC’s Dragons’ Den. Venture capitalists usually invest other people’s money, and look for a ten-fold increase in the business value over a three-year period. They don’t usually invest in start-ups because of the risk involved… unless they are confident about the product opportunity, market opportunity and management ability.
- Business Angels
These are wealthy individuals looking to invest in companies. I would recommend searching on line for ‘angel investment network’, a website which connects UK entrepreneurs with angel investors.
- Peer lending
Here you can pitch to multiple lenders via online platforms. You’ll need financial forecasts and a business plan – see my other blogs for guidance.
This is similar to peer lending, but you’ll have to give investors part of your equity or provide ‘rewards’.
- Merchant cash advance
A loan that’s based on the income you receive from debit and credit card payments. It’s repaid via future card transactions as an added percentage.
- Short term cash loans
If your business is profitable you could get about 50% of your average monthly income, from your bank. The loan is repaid from the bank account.
- Trade finance
This loan helps bridge the gap between you paying your supplier for stock or materials and getting payment from your customer. The lender pays the supplier direct and recoups the funds when your customer pays.
- Equity release
You might be able to secure between 50% and 70% as a loan by the lender putting a charge on your property.
- Asset refinancing
You can raise funds by refinancing assets, such as vehicles and equipment, under new leases. This can generate large sums of cash quickly.
- Friends and family
Borrowing from people that you are close to, is not always a good option… unless they are millionaires! You wouldn’t want them to lose their money.
- Overdraft facilities
Bank overdrafts are an option if you’re profitable and have a good cash flow. Having an overdraft will cover you for an emergency or temporary blip.
- Bank loans
You’ll need to be prepared to offer a personal guarantee or assets. Banks are more likely to lend to companies that have been trading profitably for a few years. The Enterprise Finance Guarantee (EFG) is a government-backed scheme, which means some business owners can access bank loans, even if they’ve been turned down elsewhere.
- Business grants
Government bodies offer grants towards, for example, training, taking on staff, development and research. Search online for: ‘Government business finance support finder’.
- Soft loans
These low-interest loans are available through government bodies and charities. Search online for ‘start up loans’, ‘big issue investment’ and ‘prince’s trust’.
I hope this gives you a good overview of the funding available. Of course many start-up business owners use their savings, or credit cards, or remortgage their homes.
Please contact me if you’d like further help or see my other blogs and videos for loads of great free business advice.