For small businesses the path of growth is often blocked by financial constraints. If you aren’t ‘cash rich’ or have a savings bundle to fall back on, being able to expand and invest is difficult, or nearby impossible. Whether it’s investing in new equipment, expanding operations, or hiring more staff, being able to access additional funds is vital for a small business wanting to grow.
We’ve been reflecting on the funding options available to small businesses. Before you take on additional finance ensure you determine the level of risk you are prepared to work within and seek expert financial advice.
There are many government schemes available. The Growth Guarantee Scheme (GCS) was launched on July 1, replacing the Recovery Loan Scheme. To access this scheme, you must have a turnover less than £45 million, have been trading for a minimum of 2 years, be a limited company, use the loan for a business purpose and not have any insolvency proceedings ongoing. If you meet these eligibility criteria it’s worth looking at the British Business Bank website where you can find more details.
There are crowdfunding platforms which can help raise capital by pooling smaller contributions from individuals or investors. Using social media and crowdfunding websites can help you to connect with investors that might be outside your current network. Crowdfunder, Kickstarter, Crowdcube – a quick google will provide you with access to a large number of websites where you can advertise your requirements.
You can approach the high street banks for a traditional loan. Normally provided in a lump sum repaid over a predetermined period with interest. A bank loan offers stability and a structured payment plan, but be prepared for a lengthy approval process and strict eligibility criteria. There are alternative lenders in the form of marketplace lending, peer-to-peer lending or P2P lending. These P2P websites bring together people or businesses that want to lend money to those that want a loan. On some of these sites the money loaned is automatically divided between borrowers but be prepared for higher interest rates. This route is definitely considered riskier.
Look to Angel Investors or Venture Capitalists, who would usually be high-net worth individuals who are interested in investing their own money in a company. Most likely to be attractive to start-up businesses or those that are in the early stages of development. Be prepared that these investors will expect to take ownership positions within your business, but on the flip side they can provide strategic guidance and industry connections. Think Dragon’s Den…
There are various government grants and subsidies available to small businesses. These can come in the form of grants for R&D projects, subsidies for hiring apprentices etc. Be prepared to get competitive as you’ll need to really ‘sell’ your idea as these options tend to be non-repayable.
Asset-based lending is a finance method that uses an asset owned by your business as security against a business loan. So, you can leverage the equipment you own, your inventory, property etc. This route means you take more of the risk, but means you will not relinquish ownership.
Look at revolving credit facilities, which can help you manage any cash flow fluctuations. You get access to a pre-approved line of credit that can be drawn upon when needed. However, they do tend to have higher fees than fixed term loans. And, if all else fails look at your own personal savings or look to friends/family for loans.
Whatever you decide, it’s all about balancing the risk. At CKLG our Business Services team can help advise on how to access the right kind of finance to support your business growth. Our ‘From Startup to Success: 57 Business Growth Ideas’ is available as a download from our website or pick up the phone and give us a call.