Accountancy practices are often the first port of call for business looking for advice, and recently I’ve had an influx of clients wanting answers to the same question. With business struggling to secure traditional finance such as bank lending, clients want to know how they can raise finance for their business and what options are out there and available to them. So, I wanted to use the opportunity of my blog post to outline three alternative financing options that have grown in popularity during the recession:
1. Invoice discounting or factoring
The stigma around this type of factoring has now virtually disappeared and this type of lending can be very useful to businesses that have a strong debtor book, which the bank will lend against. It can also create an instant cash injection into a business as well as help the ongoing cash flow requirements.
2. Investment from Family/Friends
There’s been an increase in business leaders inviting friends and family to invest into their business under the very attractive tax schemes that HM Revenue & Customs (HMRC) offer. The Seed Enterprise Investment Scheme (SEIS) is designed for small, early-stage companies and enables the investor to obtain a 50% tax refund of their investment and the Enterprise Investment Scheme (EIS) offers a 30% tax refund. There are obviously a number of conditions that need to be met by both the investor and company.
3. Crowd Funding
Crowd funding is playing an important role in the SME marketplace with companies like Thin Cats, Seedsrs and Funding Circle providing a service where investors obtain a decent return on their investment and companies have access to money to grown their business. Angel investors are also an option but they tend to want a fair share of the equity in the business. Although we’ve seen a tightening of belts, businesses shouldn’t simply rule out bank loans – lending is still an option if the business proposal is strong enough and backed up by good financial figures and trading history. Lastly, when considering your business finance, you mustn’t forget using the assets that you already have and release equity whilst interest rates are so low.