Most businesses need financing at some point, whether it’s healthy and long-established or a start-up business. If you are a well-established business, you may still need financing at some point in the business cycle, to raise finance for expansion or growth, whereas if you are a start-up you might have to use secure financing to deal with setup costs.
A decision to take on some kind of debt is not uncommon however, the prospect of dealing with various funders can be daunting for beginners. In this blog I will take you through what you need to do to secure funding for your company and where you can get the required amount.
Where you look for funding, and how you look for funding, depends on your company and the kind of money you need. The process of looking for this must match the needs of the company.
Firstly the role business plans play in securing funds, is vital. If you don’t have a business plan it is harder for lenders to take your funding requirements seriously. Business plans are an essential piece of the funding puzzle, explaining exactly how much money you need, where you are going to spend it and how long it will take you to earn it back. Investors will look first at a brief summary, and then you will pitch; if you get through that screening, they’ll want to see a business plan for the process of due diligence. And even before that, during the early stages, they’ll expect you to have a business plan in the background, for your own use.
Everyone you talk to is going to expect you to have a business plan available. They may not start their discussions with you by looking at the plan, but don’t get caught without one when they ask to see it.
Next, taking out a loan from friends or family is the most cost effective in most cases, and especially ideal for start-ups. If this option is available, you will need to explain your business idea in the clearest way. If your friends and family believe in the idea, and in you, then this is a great option to secure funds. However, If no one, and I mean absolutely no one, from your close network wants to lend you money, then you may want to reconsider the venture and question the greatness of your idea (or work on your own persuasion skills!)
If friends and family is a no go – approaching commercial lenders is by far the best option for most businesses. If you are a start-up then this may not be straightforward. A great deal of small business financing is accomplished through bank loans based on the business owner’s personal collateral, such as home ownership. It’s generally accepted that home equity is the greatest source of small business financing. Remember that most commercial banks require a business plan as part of a loan application.
Another great way to get secured funding for your business is by way of Asset finance. Most specialist lenders will finance assets such as the telephone system, cyber protection system and plant and machinery. Also, it’s worth looking at obtaining secured finance by way of invoice financing, borrow money against the amounts due from customers.
As an alternative to bank loans or borrowing from someone independently, there are quite a lot of grants and funding opportunities available for small businesses. You may find that your local government offers funding for new businesses in the area, or that they can point you in the direction of potential funding sources.
An interesting business funding opportunity for companies at least one year old and currently turning over between £50,000–£500,000, is the ‘New Small Business Grants Initiative’. It gives away £5,000 every month in a free-to-enter competition.
Raising finance for any business is a challenge, but vital for the advancement of even the greatest ideas to develop and grow. Our corporate finance team is here to support you to discover finance providers that add real value to your business – whether you are looking to raise finance for a particular project, thinking about growth through acquisition or even looking to sell.
To find out more about how we can help you to secure funding, please read our previous article here.
We can support you in all stages of the funding process and position your company in the best possible light for securing finance. If you need any short of advice, please contact us at 0208 551 7200 or email firstname.lastname@example.org
Written by Suda Ratnam