Finance for Business

Finance for Business

Funding sources that might be available for businesses

 

Below we provide a brief overview of the potential sources of funding that may be available to you and your business.

If you would like to discuss what type of funding would be most suitable for your business, please contact us using one of the email addresses below.

Personal Funds, Friends & Family

Businesses are often started on savings, overdrafts or credit cards, with help from friends or family, or by using the family property as collateral. But soon after, that the business will need to be financed so it can stand on its own two feet if it is to be a sustainably growing proposition.

Overdrafts and Bank Loans

Overdrafts are often what a business uses to help day-to-day short-term requirements and as it grows incrementally. Loans, leasing or hire purchase agreements are in most cases better suited to larger longer-term purchases, such as investment in plant and machinery, computers or transport. To obtain a loan or overdraft, the business must prove to the lender that it will generate the income and cash to both repay the facility and service the loan by meeting interest payments. It is likely that the business will need to provide security for any money borrowed against other personal or business assets.

Startup Loans

Startup Loans is a government funded scheme to provide advice, business loans and mentoring to start-up businesses. A Startup Loan is a personal loan for business purposes; it aims to help individuals starting a new venture which is either still in the planning stages or has been trading for up to 12 months, although in certain circumstances this may be extended to 24 months. For further information, visit www.startuploans.co.uk/about-us.

Grants and Vouchers

A grant is an amount of money given to an individual or business for a specific project or purpose. You can apply for a grant from the government, the European Union and your local councils (check Support from LEPs in the Business Support section of this website). You won’t need to pay a grant back, but there’s a lot of competition and they are almost always awarded for a specific purpose or project.

Business Angels

Business angels are individuals who make equity investments in businesses with growth potential. They invest in businesses in the early stages of development, or post-revenue established businesses looking for expansion capital. Angels back high-risk opportunities, with the potential for high returns. Most can also bring valuable first-hand experience of growing businesses, often early-stage businesses. The UK Business Angel Association website can be a useful source of information.

Venture Capital

Venture capitalists invest in businesses with the potential for high returns – those with products or services with a unique selling point, or competitive advantage. They invest in a portfolio where a significant number of businesses may fail, so those that succeed have to compensate for those losses. They also want proven track records, and so rarely invest at the start-up stage. Like angel investors, venture capitalists bring a wealth of experience to the business. Find out more through the main BVCA (British Venture Capital Association) website, as well as its dedicated website on venture capital – www.venturecentral.co.uk.

Crowdfunding

The use of equity crowdfunding by companies looking to raise equity finance is becoming increasingly common. In effect it is a means to connect companies with potentially hundreds of thousands of potential investors, some of whom may also be current or future customers. It does this by matching companies with would-be angels via an internet-based platform. Find out more on the UK Crowdfunding Association website.

Peer-to -Peer Lending

P2P business lending is a direct alternative to a bank loan. It can often be more quickly arranged and it will also allow partners, customers, and friends and family who invest through the platform to share in the returns of the business. The minimum loan size is very small, which encourages a wide range of lenders to participate, and the maximum loan size of P2P business lending is growing. Further information can be found on the Peer-to-Peer Finance Association website.

Trade Finance

Funding that assists businesses in purchasing goods, whether from international or domestic sellers, is termed trade finance. It is often transactional, with finance only being provided for specific shipments of goods and for specific periods of time. Here the asset being funded against is the goods themselves (as opposed to invoices in IF) and until repaid by the client, the goods belong to the finance provider. The process is supported by letters of credit, bills of exchange and bank guarantees.

Mezzanine Finance

Basically debt capital, it gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. Mezzanine finance is used in product developments, penetration of new markets, infrastructure investments or strategic merger and acquisition plans.

Export Finance

When businesses export, they need to be sure they can afford to produce the goods and that they will be paid. Export finance helps mitigate risks such as default or delayed payment. For further information, visit gov.uk/government/organisations/uk-export-finance.