FINANCE
How to determine and obtain the right type of finance to support your business growth
IN TODAY ’ S FINANCIAL LANDSCAPE , FINDING THE BEST LENDER FOR YOUR BUSINESS IS COMPLEX . THE CHOICE IN LENDERS IS VAST AND THEY FREQUENTLY ‘ MOVE THE GOALPOSTS ’ IN THEIR CRITERIA .
BY MARC FARMER , PARTNER
WHAT SHOULD YOU CONSIDER ?
1 . Don ' t limit yourself to high street banks
Most SMEs approach their bank when they need funding . However , there is a wide range of other finance providers available , including the newer digital banking providers , independent finance companies , fintechs , angel investors , and private equity funds .
2 . Be clear what you need the money for
If you are investing in working capital such as hiring more staff or buying more materials , you will need a different type of finance than if you are buying equipment or bigger facilities .
3 . Assess your options carefully
There are two main types of funding for SMEs – debt finance and equity investment .
Debt finance includes traditional loans and overdrafts , invoice finance , in which an invoice finance company will lend you a proportion of the value of an invoice as soon as you have raised it ; peer-to-peer and similar cashflow lenders , and asset finance , in which the funding is used to fund the purchase of an asset such as new equipment .
Equity finance includes angel investors , private equity funds and crowdfunding .
4 . Consider giving up equity in your business
If your business is growing and generating profits , you are likely to be able to borrow money as debt finance .
If your business is on a high growth curve , it is likely to need a large amount of money early on in its lifecycle to scale up , which it may be unable to repay through regular repayments . In this case , giving up a share of equity to a private equity fund or angel investor could reduce strain on cashflow .
5 . Understand the pros and cons for each type of funding
The advantage of asset finance is that it provides certainty for your cashflow and forecasting models . Asset finance may also allow you to buy new assets to scale up and create more revenue streams . A disadvantage is that the lending is secured on the assets . Asset refinance allows you to turn your existing assets into cash .
The advantage of invoice discounting , meanwhile , is it can scale up with the business . However , it is not suitable for some sectors , and can be relatively expensive and comes with complicated administration criteria dictated by the lender . Costs are based on turnover ; if you only want to borrow a relatively small percentage , you might consider using a company that funds single invoices rather than a whole turnover facility .
6 . Make your business shine to maximise your options
Create forecasts for your profit and loss , balance sheet and cashflow . Include the impact of the funding you are seeking .
TOP TIPS
1 . Seek professional advice to help you find the best financing solution . Our team of trusted business advisors will talk you through your options . We are strategic partners with business lenders such as Fluidly , who provide access to many lenders and funding projects , and Propel , who have been providing asset finance solutions to UK businesses for 25 years ; or we can connect you with our network of external lenders to open up more options for you .
2 . Individual investors can benefit from big tax breaks through EIS and SEIS schemes – do you know anyone who might be appropriate ?
3 . Carefully consider why you need funding and what you would spend the money on , and the knock-on effect on your business .
To discuss your options and help you access the right funding to help your business grow , speak to your local Azets trusted business advisor or email marc . farmer @ azets . co . uk .
Local offices : Ashford : 01233 629 255 / Canterbury : 01227 454 861 Maidstone : 01622 690 666 / Orpington : 01689 827 505 Sandwich : 01304 249 997
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