Posted by Harry on 5th Aug 2018
Once you had to go cap in hand to the bank manager with a business spread sheet showing how you could develop your business with a loan. He or she had the power to say yes or no with no real knowledge of the industry you were in. Now things have changed. Here are 10 ways to draw down money to grow your business – and although all have merits the number one choice is an industry specific loan at number one. 4 Colour Finance helps print firms develop their business in the UK and abroad. For details visit 4colourfinance.co.uk or call +44 (0) 1934 533 133 or email firstname.lastname@example.org
10: Start-up Loans
Arranged via the Government or the EU through a number of schemes start up loans range from £500 to £25,000 and as it says on the tin – they are for business start-ups –but you will need a comprehensive business plan. Unlike a business loan, this is an unsecured personal loan and you’ll get free support and guidance to help write your business plan, and successful applicants get up to 12 months of free mentoring. To apply for the loan all of the following must apply: you live in the UK; you’re 18 or over; you have (or plan to start) a UK-based business that’s been fully trading for less than 24 months. Start Up Loans are government-backed and charge a fixed interest rate of 6% per year. You can repay the loan over a period of 1 to 5 years. There’s no application fee and no early repayment fee.
9: Unsecured business loans
To be able to get an unsecured business loan you need to be a pretty good bet. Interest rates will be high but you can get a loan that runs into six figures and you may be able to repay it up to five years. Decisions are quick – perhaps a few days – but you will need a rock solid business plan and a gold standard track record as nobody will make an unsecured loan without a pretty solid idea you’ll repay. If you fall behind with payments the interest will go up and penalty clauses may apply. A thriving business that has good profits and a healthy future may see this as one way to expand. Unsecured means of course there is no charge on your home or other assets. There are many finance groups who offer unsecured loans, just type in the words into Google and you’ll realise how wide the market is. However these firms offer loans to all types of business so may have no first-hand knowledge of your industry and may be over cautious and charge exceptionally high rates of interest – and then there’s the small print. You have been warned.
8: Revolving credit facilities
Revolving credit is another way for saying the word ‘overdraft’. Banks are the usual provider although there are some other financial institutions that offer them. It is a line of credit available to a business to borrow money up to a fixed amount with a commitment fee or arrangement fee up front. It is normally unsecured in most cases and is a way of managing cash flow when payments are likely to hit droughts when invoices are not paid on time. The interest rate can be quite low if you have a good credit rating but much higher as the amount borrowed rises. It is exactly the same as a personal bank overdraft arrangement but on a larger scale with facilities into the tens of thousands of pounds or even higher. You should avoid reaching the limit of the credit and not seeing the balance come down as the bank will be inclined to ask you to turn it into a loan which defeats the object. Once started an overdraft is very hard to get out of as they can become a habit and an expensive one at that.
7: Asset Finance or leasing arrangements
Need to buy new kit? One way is to lease the equipment from the supplier. Just like finance options for cars for the private individual so asset finance has a variety of options. You may be asked to pay a deposit and then a monthly fee over a set number of months with a balloon payment at the end. At that point you may be given the option to buy the kit outright, or to lease a new piece of machinery and upgrade what you have so you are always running on new. The finance option is neither secured nor unsecured, as the finance firm owns the hardware at all times. If you default then they can repossess the equipment.
6: Bank loan
Yes we had to include a traditional bank loan as they have been the main backers of industry for decades but not anymore. Since they have retreated from the high street banks have lost touch with businesses and have become increasingly online. A good bank manager will come out and visit your firm and learn about your work. They are few and far between and increasingly banks are not sympathetic to industry but simply see firms as a way to make a profit. Avoid if you can and cherish the few bank managers who will look at your business with interest and advise you on how to finance it.
5: Invoice Finance
Some say invoice financing and others say factoring, although there are also confidential invoice discounting and selective invoice finance within this method financing. If you look at your ledger you will see a large amount of money owed to your firm. If that money could be paid immediately you might not need to borrow any money. Your cash flow is solved and you’d have spare capital for investment. By factoring your invoices to a financial company you get paid around 90 percent or so of the cash immediately instead of waiting for weeks on end. Some of your clients may not like this system as it means your finance provider may chase the cash up on your behalf and for their commission with more energy than you can. Confidential invoice discounting (CID) differs from factoring, as the credit control remains with you. You get paid immediately by the factoring firm but you have to chase up the money for the factoring company so your client is not chased by the third party. However you may need more resources in your accounts department to do the chasing. And of course the factoring firm will also want paying. Invoice discounting is another form or factoring with the client offered a discount for early payment by the factoring company. You still get paid quickly but you lose a percentage of the invoice in the discount and to the factoring firm in commission.
4: Commercial mortgages
Just like a mortgage on your home a commercial mortgage is for the long haul – maybe up to 20 years. It means the cash you can raise from your firm’s bricks and mortar could be substantial and the interest rates low. The lender will have the security of the property so can repossess if you default. It only works for firms who already own their business premises outright.
3: Friends and family
A surprising number of business people will admit it was their family or relatives who helped get them started by loaning them money. Some family members or friends will loan money for a stake in the company and clearly must have a strong belief that you will succeed. The best policy is to be highly professional by drawing up a business plan to show how the investment will work and what the returns will be. To avoid family fall-outs make it a written agreement just as you would with a commercial lender.
2: Crowd funding
Yes you can crowd fund your business by asking members of the public to back your plans online. Crowdfunder is the platform for raising funds for not just charities and community projects but business plans as well. This takes the form of donations, rewards or community shares and although in most cases the targets are low compared to raising capital on a mortgage or a commercial loan the idea has worked for many firms. You need to have a business plan and to be open and honest with the potential lenders as is the case in all forms of borrowing.
1: Industry specific loan
If you are going to borrow from a commercial lender such as financial institution or a bank then choose one that knows your industry inside out. You are more likely to get a sympathetic hearing and a favourable interest rate from a specialist as they are in tune with the business you are in.
Recommendation: 4 Colour Finance