How To Get Finance For Your Business

 

Getting finance for your business

Whether you are launching a new business or looking at growth and long-term longevity of your existing business, you may be considering investment or bringing in other people, so here’s our guide to help you plan accordingly. If your business needs to raise finance to succeed there are several ways to do this, either by borrowing or seeking investment.

Loans and other finance

It sounds obvious but it’s important to remember that when you borrow funds, you will retain full control of your business.

  • You could source a loan or overdraft from the bank or other commercial lender.  Although this might be the more traditional route there are other options

  • There are some good government schemes offering start up business loans for new businesses

  • Consider crowdfunding to raise ‘donation like’ injections of cash, particularly if your business is offering something to the community and you can give them a little something back as a treat

  • There are other public funding options that are available now (Funding Circle is one) whereby a collective group of individuals and organisations are effectively lending your business money as a single loan

  • Peer to peer lending, whereby individual investors lend you and/or your business money

  • Specific lending, such as tax finance and HP finance on equipment

  • Invoice factoring and discounting, which is usually the most expensive method

Speak to us if you need help with sourcing finance.  We use a dedicated resource to help source the best lending options.

Investment

Here, you are usually giving away a share of your business in return for a cash injection, so this need to be thought through carefully

  • Crowdfunding (as before) may be an option, but this time offering small quantities of shares in your company

  • You could sell tranches of shares in your company to investors, and do so by enticing investors through income tax relief on offering EIS/SEIS share subscriptions into your company.  Consider whether you want these investors to have an active role in your business to help you grow

  • You could take on larger scale angel investors or venture capital.

When considering investment, it is crucially important to work out in the beginning how much money you actually need. Many people will come up with a figure in their head without any methodology behind it. They will say they need say £150,000 for a project for example, but in fact they may only need a fraction of that amount and can over-raise finance that is not needed, meaning that could be giving away too much of the business. Often, people give away too much early on and then need to reach out to refinance again at a later date, and therefore end up decreasing their own shareholding in the company. Eventually, this could even mean giving away majority ownership.

Long or Short Term Plans– Income or Capital Growth?

It is important to consider what your long term plans are for the business and whether it will provide you money for the future, immediate profit or you are building something with the intention to sell the business or some form of product or IP. Many people invest time and money in building a business with no immediate profitability with the view to building capital value.

Consider where your main financial return will come from, i.e. from the sale of the business or from the services or goods it provides to customers? This will help you determine how much of your business you really want to give away in exchange for somebody buying shares in your business and it will also help you consider how much financing you really need at the outset.

This is why business plans and financial plans are essential for a business that needs finance. Be realistic and be truthful to yourself about anticipated returns, know how much your marketing budget will realistically be. You need to know what your professional fees and other overheads are going to be, do your research, find out from colleagues and peers and other business owners and put together a plan that is real and functional and something that can be fully fulfilled and achieved.

Click here to read more about how FUSE Accountants can help with Business Planning.