It’s official: the recession has ended and the economic recovery is getting traction in the North of England, but developing and expanding your business often requires capital. Why is this? New and expanding businesses often need equipment, it can take a month or two to get customers to pay, and initially new ventures often lose money whilst they are getting established. So where can you find finance?
Bank. Your bank manager should help you through the bank’s admin to give you funding. If your bank manager is unhelpful the first thing to do is to change manager or change bank so you have a helpful one! Let me know if you need help finding a good one.
What banks cannot be expected to do is to take on equity risk for little return. What this means is you can’t expect to give the banks say 6% interest but for them to take most of the risk of business failure – and for you to take the rewards if it succeeds. To mitigate this risk they will require personal guarantees and security, or to know you have substantial funds invested in the business. If you are uncomfortable giving this this security read on!
Loans from Investors. If your business has a profitable trading history, you might get loans from third parties such as Funding Circle, where individuals make loans directly to businesses. They may still require a personal guarantee. The advantage is that the investor gets a good rate of interest and you get money quickly at a higher but reasonable interest rate.
Factoring is where you raise money secured against money owed to you by your customers. When people lend to you they want to make sure they get their money back, and they’ll want security. This could be over your property, or the fixed assets of your debts. Factoring has a bad name because it can be expensive, but if your main asset is your debtors’ ledger, it might be for you, and I’ve seen several excellent factoring relationships. We recommend that factoring should only be considered as a short term arrangement, so check the exit conditions as these can be quite costly.
New Shareholders. You shouldn’t give your equity interest away lightly. It’s the shareholders who take the profits from the business and they also get a payout if you sell it. The upside is that obtaining new shareholders can add new skills to the business and stabilise its finances.
Free money. There is some government help available if you are creating jobs.
Of course if you want to expand your business and want to discuss how it can be financed please ring me or any of my team to discuss your individual circumstances in more detail.
You can contact us on 01977 667789.