You have got your business up and running, but what next

Business Insights

All businesses need funds to grow and those businesses which have already established a sound base should find it easier to access funds than a brand new or start up business.

Your bank is usually the first port of call, and armed with a clear business plan and a proven pattern of growth behind you it should be plain sailing, right? Sadly, not always.

Many businesses are started with your own money, raised through an overdraft or personal loan. While some banks are willing to allow a personal loan to be used for business purposes, others are not; be absolutely straight with your bank about the purpose of the loan or you may be committing a fraud. In some circumstances a bank overdraft can be a useful tool to dip into at need, but the interest rates can be high and the bank may demand full repayment at any time.

The equation for growth can be complicated and sometimes the flexibility provided by an alternative lender may be more suitable for your needs.

Borrowers and investors have never had so many options; given the growing market of alternative lenders there’s never been a better time to look for growth finance that doesn’t involve your bank manager.

Friends and family may be willing to invest in your business, particularly if the business is already showing good signs of potential. If you choose this route, be very careful to keep everything on a business-like footing with a clear written agreement as to repayment terms and interest. On the upside they will probably expect lower, if any, interest. The potential downsides are how involved they may wish to be, and the effects within your circle should the business fail.

An extension of the idea of friends and family can be one of the crowdfunding platforms, investors come together on crowdfunding sites, to pool money towards a particular venture or idea – it could be ten people putting in £500 each, or 3,000 people each giving £1. It is well worth testing the water via a crowdfunding site, to see how appealing your idea is to potential investors but also to get some crucial word-of-mouth marketing going.

Peer-to-peer loans run on a similar principle to crowdfunding, where your proposition is placed on-line giving a network of individual investors, the opportunity to bid on investing in your business, the attractiveness of your proposition can be gauged by the terms investors are prepared to offer.

You may be prepared to offer a share in your business to an investor. A business angel may provide investment in return for an equity stake, seasoned entrepreneurs themselves, they understand what you’re going through and they’re likely to be patient. Venture capitalists are also willing to invest in growing companies in return for a share in your business but will expect to be involved in the management of your business and be looking for a quick return.

In the cash advance route, there are companies geared to offering money upfront, before debts and invoices have actually been paid. Under the terms of the agreement, the financier purchases a fixed percentage of your future credit/debit card transactions at a discount, and then advances the cash into your bank account, usually within 10 working days. Repayments will be scheduled at a pre-agreed percentage of every transaction .

Another alternative is to borrow against company assets, such as property, premises, accounts receivable, inventory and equipment. This can be useful strategy, although the interest rates tend to be very high. Be sure that you will be able to repay the loan in the time frame, because if you can’t meet your obligations the asset will be repossessed.

On the topic of making your assets work for you, many companies use factoring, allowing you to release the money in unpaid invoices, speeding cash flow and reducing the time spent chasing bad debts. The factor will take control of your invoices and assume responsibility for processing them. However a factor will impose a charge on each invoice, so your profit margins will be reduced and it can be difficult to sever a contract with a factoring firm, because you have to compensate them for all outstanding invoices before you can formally part company.

There will be an alternative form of funding that will be right for your business, just do your research and take, as always, the appropriate professional advice.