Whether you are starting your business or are looking to expand it, most companies need additional finance at some point. However, funding is not easy to come across, particularly as lending from banks has tightened over the last few years.
This list will provide a comprehensive overview of what types of finance are available for businesses, so you can receive monetary assistance when you need it.
Many enterprises can secure a grant from the government, as it wants to support entrepreneurs and British-grown businesses. There is a wide selection of the types of grants available, depending on the industry, size of your business, and even your age.
For instance, The Prince’s Trust provides small grants, loans of as much as £7,500 at a rate of 6% APR, and business support for those aged between 18 and 30 running their own company.
Direct grants are also typically given for projects that encourage employment, education and capital investment. You can find a list of grants available here to see whether one may apply to you.
Traditionally, when businesses needed financial help, they went to a bank for a loan. Indeed, this is still possible, with financial services providers lending tens of thousands of pounds to companies they think have a good chance of being successful.
However, borrowing has become increasingly limited recently, which can make it difficult to get a loan, particularly if you have a poor or short credit history. You will also have to provide security against your loan, so risk losing belongings if you are unable to pay it off. Something that puts many businesses off is the steep interest rate on the finance (up to 15%), which would eat directly into their profits.
Additionally, it is difficult to borrow more than £500,000 – and the more you borrow the better your credit history, cash forecast and business plan have to be. Some companies want much greater investments than this if they have huge ambitions for their enterprises.
This is why many look for private investors who will have a share in the business and its profits by putting in a considerable amount of money to get it off the ground.
Angel investors are wealthy people who invest in small businesses to help them grow, as well as offer professional advice, skills and market contacts. Angel investors can make considerable returns with their cash, while businesses benefit from the additional finance and expertise.
This type of investor will typically put their money into many projects, taking a small share of each business with a long-term view for financial gain.
Alternatively, you could seek assistance from companies that invest large amounts of money in enterprises they believe will grow quickly, and in return they receive a private equity stake in the business. Venture capital firms find companies when they are starting out, and their five to seven-year investment plan helps them develop and grow.
If you have a business concept you think could be really successful, this might be the investment avenue to pursue.
Finding an investor
Increase your chances of finding an investor by having a strong concept or product. Without this, no investor will put money into your business.
As well as good ideas, you need a solid business plan, so make sure you know your numbers thoroughly, your cash flow projections, and how you plan to use the investment to boost growth. You need profit predictions, and have realistic expectations of what value the business will have for them in both the short and long-term.
Once you have got an investor, use them wisely. They can often provide great advice, contacts and professional experience, so take advantage of this, particularly if they are knowledgeable about the sector you are breaking into.
Do not forget that as an investor, they have a share in the running of your company, as well as your profits, so they might well expect to voice strong opinions on future plans. Always include them in meetings and keep your relationship on good terms, otherwise they may be tempted to sell their share and pull their investment out of your business at a crucial stage of development.