So… what do you do when the banks won ‘t help? Whilst the first port of call with any business seeking financial help should be the bank, we often hear of issues and problems with getting the bank to come through with the necessary support to help a business. So, what other options are available for funding your business? In this short article we explore some of the main options available to help you grow.
Asset based finance
Essentially, this form of finance allows you to borrow against assets owned by the business. Leasing arrangements are mostly ‘ rental agreements ‘ with the finance company, however, it may not be for the full amount that the equipment costs. This works in two ways; the lender either buys an asset from you and you rent it back (sale and leaseback) or you borrow against your asset but are still allowed to use it (secured borrowing).
Not for everyone, business angels can be very useful if you have a commercial idea supported by ambitious growth plans. Essentially, a business angel will provide private investment into the business. The added benefit of this approach is that you would hope to get not just money from the investor but their expertise and contacts. What needs to be remembered here though is that this comes at a price. Unlike a traditional banking relationships, a private investor is likely to require a substantial equity share in the buisness and in some circumstances, this may lead to a loss of control.
Enterprise Finance Guarantee
The Enterprise Finance Guarantee (EFG) is a loan guarantee scheme to facilitate additional lending to viable small and medium size enterprises lacking adequate security or proven track record for a normal commercial loan. It was introduced in 2009 and has had some mixed successes. Despite this, it is always worth putting this on the agenda. The Government provides the lender with a guarantee for 75% of the loan, for which the business borrowing pays a premium. Accredited bank lenders administer EFG and make all decisions on lending. The scheme should run until 2014-15 and is expected to facilitate freeing up £600 million of additional lending.
Export Enterprise Finance Guarantee
Similar to the above but focused on export: if your business trades overseas or is looking to enter new markets abroad, the Export Enterprise Finance Guarantee (ExEFG) scheme is designed to help.
The scheme is specifically aimed at giving small businesses that are unable to get a commercial export loan access to the credit they need to win overseas contracts by providing lenders with a 60% guarantee.
In the most basic terms, a grant is a sum of money awarded to help a business succeed in a particular project, for example starting a new business or developing a new product. Unlike a loan, they are generally not repayable and you pay no interest on the amount given, making them an attractive option for small businesses. Many grants exist, local, national and European grants have been attractive to early stage businesses in recent years. Grant application, whilst not difficult, requires careful navigation.
Invoice discounting/finance and factoring
Invoice finance or discounting effectively ‘ frees-up ‘ the money tied up in a businesses unpaid invoices. However, you’ ll typically only receive 80-90% of the face value of the invoice.
Factoring is slightly different in that it allows a business