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How to assess funding options


Posted on 26 November 2014

With the daylight getting shorter and Christmas stuff already out in the shops, spring may seem a long way off but that need not be the only time of year things grow!

No, I’m not talking tulips and begonias; I’m talking your business.

It’s not uncommon for business owners to concentrate so hard on running their businesses that they forget to stop and look around to see what is available to help. This is potentially true when it comes to raising finance.

With many new sources of finance becoming regularly available, how do you assess these options?

The first port of call is to borrow from your bank: it’s relatively low cost borrowing and doesn’t involve giving up any equity. But you will need to give them security which normally means a charge over your property (if the business has one), or more commonly linking borrowing direct to your sales invoices in the form of confidential invoice discounting. This form of finance is particularly relevant to growing businesses, as it expands as you grow.

If you don’t have the perfect security to borrow from your bank, there are lenders out there that will take a broader view of your assets (including for example IP and brand names). These include the so-called Challenger Banks and Crowd Funding – the latter is where private individuals come together to lend businesses the money they need.  As you might expect, these sources of funding cost more than banks, but you still don’t have to share your equity.

So what happens if you cannot borrow money? The answer might be to raise equity.

Here you will be diluting your ownership for fresh capital and it’s usually a complex process, even if you are raising modest sums (less than £500k being modest).  If you are an established, profitable and cash-generative business then the world of Private Equity might be for you. At the other end of the spectrum, startups, pre-revenue and cash-consumptive, then you might look at Business Angels and some of the seed equity players.

Raising equity capital is not for everyone: it requires a lot of work before you get the cheque, and diluting ownership is sometimes hard to swallow. But if it gives you the growth you are seeking, and increases shareholder value over and above the amount raised then it is the right economic decision.

Another source of funding which is often overlooked is a grant. With so many grants now available, it’s no surprise business owners feel overwhelmed! Whilst they can be confusing and time consuming to apply for, grants are a great way to give your business, or a specific project, the cash injection it needs and once you’ve had one grant, it becomes much easier to get another one.

There are a raft of websites you can look through to find out which grants are available, but the Gov.UK website is a particularly good place to start.

If the world of finance seems confusing, then take advice from an experienced professional.  

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