Start Up Finance will be needed for…
Then as you expand, further finance may be necessary to support any of the above that may increase before you make the sales and get paid. Businesses that are profitable can go bust if they don’t have the appropriate finance arrangements in place to deal with expenses that need paying before their customers pay them.
You may have cash flow difficulties perhaps caused by needing working capital for debtors and stock or seasonal business variations.
You need to try to match the appropriate source of finance for what you are trying to achieve. Generally, long-term finance for long-term investment and short-term finance for short-term working capital requirements.
It helps to keep a good relationship with your bank and you can do this by…
May be secured or unsecured. Secured loans are just like a mortgage with repossession of the secured property possible in the event of default. The property could be your home. The loan may be used for a totally different purpose to the property on which it is secured.
The security may be a second charge on the property meaning that another lender has the first charge and the second lender only has the rights to any sale proceeds after the lender with the first charge. A lender with a second charge is therefore likely to charge a higher interest rate as would a lender of an unsecured loan.
Mortgages are the usual way of financing the purchase of commercial property with the loan being secured against the property, giving the mortgage company the right to repossess the property in the event of you defaulting on mortgage repayments. They tend to be for 10 to 25 years in length.
Under the Enterprise Finance Guarantee, the Government guarantee lending to viable businesses to help them get the working capital and investment that they need.
It supports bank lending of 3 months to 10 year maturity and is available to UK businesses with a turnover of up to £41 million where they are not easily able to access the finance they need. It is available for finance of between £1,000 and £1 million.
The guarantee can be used for new loans, to refinance existing loans where the loan is at risk due to deteriorating quality of security, or to convert an existing overdraft into a loan to release capacity to meet working capital requirements. It has also been expanded to cover invoice financing and overdrafts.
Delivery of the Enterprise Finance Guarantee and the decision on whether or not it is appropriate to use it in connection with any specific lending transaction, is fully delegated to the participating lenders. There is no automatic entitlement to receive a guaranteed loan and nor is there any pre-qualification process for it.
For more information on whether your business may be eligible you can go to the GOV.UK Enterprise Finance Guarantee page.
They can also provide other services such as…
There are two types, purchase leases which are in essence just like hire purchase and operating leases. With operating leases you pay a rent for the use of an item and sometimes at the end of the lease there is an option to purchase the item or extend the lease with a reduced rental. Every lease is different and you need to look carefully at it. Leasing is available to higher risk cases than an unsecured loan may be because of the collateral of the equipment.
Trade credit when you buy from other suppliers is generally an interest free form of finance unless the supplier is prepared to offer a discount for payment up front. It therefore makes sense to take advantage of it.
However, always bear in mind good supplier relationships are important to the success of your business and paying them on time or even in advance will contribute to this.
This is not a loan but the person providing the finance becomes a part owner in the business, who may or may not be involved in the running of the business. It is important to fully understand the terms of the arrangement with an equity partner. It could be by giving shares in your limited company or by a partnership arrangement.
The British Venture Capital Association www.bvca.co.uk represents companies offering venture capital. Apart from finance, the venture capital firm provides strategic support to the business, often with a seat on the board.
It is generally a higher risk type of investment where the Venture Capitalist is probably looking for a 300-500% return on their investment over a 4 to 5 year period. The amounts tend to be for over £100,000. Most investments take the form of equity capital.
Business angels are private individuals who invest on their own or sometimes as part of a syndicate for larger amounts. They rarely have a connection with the company before they invest but often have experience of its industry or sector. They look to invest both money and their business expertise.
Business angels usually invest between £10,000 and £250,000 in an investment. Business angels invest across most industry sectors and stages of business development, but especially in early and expansion stage businesses. Most prefer to invest in companies within 100 miles of where they live or work.
The National business angels Network is a good starting point to find a business angel. A list of their full members is here.
The Department of Business Innovation & Skills www.bis.gov.uk is often the best source to find out about grants that may be available to you. Grants are often available for…
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