alternative financing options

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Alternative Financing Options for Individual Ideas & SMS Businesses

 

Overview – Guide to Funding

There are more funding options available for businesses than before but they depend on;

  • how much funds are needed?
  • current business turnover & established trading history
  • willing to offer personal assets as security, makes it easier to get funding but riskier if not able to maintain payments
  • own the business property or levy home, again makes it easier to raise funding
  • willing to sell shares to raise funds

This guide will break it all down step-by-step covering the following;

  1. Crowd-Funding
  2. Investment Finance
  3. Loans inc Bridging
  4. Grants
  5. Overdrafts
  6. Leasing & Asset Finance
  7. Invoice Financing & Factoring (small – mid-size loans to businesses)

The complete range of Traditional business banking products is;

  • Day-to-day banking
    • Business Internet
    • Business accounts – UK & Overseas
    • Cash reserves
    • Business cards
    • Domestic and international payments
    • Dedicated business manager
  • Working capital funding, long-term lending and financing
  • Invoice discounting
  • Import / Export financing
  • Asset financing
  • Treasury services –
    • Foreign exchange
    • Currency and interest rate-hedging
  • Bonds and guarantees

 

  1. Crowd-Funding – How it Works (what’s it all about)

Crowd-funding (CF) aids & assists the passion behind so many innovative business ideas, which need the cash-flow to develop & grow. We’ll allocate you not only with the funding potential but the business advice to grow your start-up or small business.

Advantages of crowd-funding include:

  • An alternative to funding from conventional means, eg bank loan
  • Raise finance relatively quickly, often without up-front fees
  • Raise social awareness of your new business

Disadvantages of crowd-funding include:

  • The idea could be duplicated if not protected with a patent or copyright
  • Money raised will normally be returned to investors or contributors if the funding target isn’t met
  • Crowd-funding is mostly un-regulated but from 1 April 2014, loan-based and investment-based crowd-funding has to be regulated by the Financial Conduct Authority – not all is!

 

How to attract investment

Crowd-funding is an increasingly popular easy way to raise funds for a new business idea / concept or project. Instead of looking for a traditional one big cash injection from a bank or private investor, alternatively crowd-funding involves asking a large amount of ordinary people for small amounts of money.

Many online sites offer different crowd-funding models and opportunities, what maybe surprising is – it’s easy to set up your own fund with the support of ordinary people. But how do you make your business / project a success is also key to raising funds.

Crowd-funding allows into the passion and inspiration which lies behind so many innovative business ideas. Individual investments can start from as low as £10, but businesses have attracted much larger backing through crowd-funding – £millions are raised for individual ideas / projects & some even offer shares on-top of financing.

 

How crowd-funding could grow a business

The main benefit of CF is to create funding & support and demand for your business as it’s getting off the ground (similar to PR). Investors are likely to become your customers who can do a lot of self-promotion, spreading the word through social networking – it’s a strong way to get your business noticed through referrals.

Non high-profile backers are not required; CF can be a simple way for family & friends to support an idea and raise business awareness in a local, or global community.

Most CF schemes will only release money once reaching the funding target; if funds aren’t raised in the time allocated, the business gets nothing. CF platforms normally take a %percentage of the investment for administering. And by releasing the idea publically, there’s a small risk it maybe copied!

 

5 tips for successful crowd-funding –

  1. Make time to raise awareness & funds

Most projects start slowly so time is needed to promote the pitch. Spread the word through social media and encourage your supporters / organisation to do the same – keep focused in moving forward.

 

  1. Create a good pitch & impression

Successful crowd-funded projects capture the imagination and are easy to explain. Inspire investors by appealing to their emotions, as well as their pockets!

The initial pitch should anticipate potential questions, be prepared to engage with investors to answer even more. Make sure all the phone calls or emails are dealt with promptly.

 

iii. Seed the initial idea through family & friends

Research & connect with potential ‘low-hanging fruit’ customers before launching the pitch. Creating anticipation through word-of-mouth can help the crowd-fund get off to a strong start

Potential investors are more likely to pitch in if they see someone else believes in your idea too so don’t be afraid to show examples of interest / take-up / initial trading.

 

  1. Choose the right fund

There’s a host of different crowd-funding sites, each with a different focus, their own rules and investors. Most funds work on the basis of donations; investors receiving a gift or reward in return for backing.

Some are traditional loan schemes, who expect to see investments returned with a small amount of interest. There are crowd-funding platforms who give direct contact with investors looking to invest in return for a stake in the company.

Some focus on creative projects, others attract a more technological or ethically focused audience – research to find the right fit for your business.

 

  1. Understand how the fund will be spent

Investors prefer to know what they’re contributing into and what difference it will make so be ready to explain clearly & confidently how the money will be spent, the returns expected by quarters.

 

We can assist with all professional business financing advice as part of our overall funding service.

 

To know more about business funding options, please enter your contact details (secure site); only to be viewed by nationally qualified advisers in your local region who will contact you back…

 

Please Note: The contact information you have provided is solely used to assist us in providing you with more information about the business 

  1. Investment Finance – How it Works (what’s it all about)

Investment finance (IF) or also known as equity finance, involves selling part of the business (‘shares’) to an investor. The investor will also take a share of any profits or losses the company makes.

Stocks, Bonds, Mutual Funds are a little confusing to understand – the mention of investments or financial topics can seem over-whelming. Understanding basic information about financial investments can be the first step in learning how to invest for a better ROI (return-on-investment), for a business growth or knowing the path to ultimate retirement.

Advantages of IF include:

  • As well as funding, investors bring new skills and opportunities to the business, eg marketing or overseas exporting experience
  • No interest to pay or re-pay a loan (see loans below)
  • Share the risks of the business with investors

Disadvantages of IF include:

  • Can be a demanding, expensive and a time-consuming process
  • As the owner / founder, you’ll have to give-up a share of the business (although shares could eventually be worth more if the business succeeds)
  • Consult investors before making management decisions
  • Limited companies can sell shares; you can’t raise money this way if a sole trader or in a partnership

 

It’s worth knowing; some government schemes assist companies to raise IF by offering tax relief for investors.

We can assist with all professional business financing advice as part of our overall funding service.

 

Types of Financial Investments;

Dividends are cash payments paid out on financial investments based on the success and earnings of a company.

Interest is the fee a bank, institution, or government pays for loaning them money through the purchase of a CD or bond.

CDs stand for Certificates-of-Deposit, they are low-risk & earn interest over a set amount of time from 30 days to 5 years mostly issued by banks.

Bonds are lending money to a company or government entity. Bonds pay interest on the money and eventually pay back the amount lent out. They are slightly more risky than CDs but provide a better return or interest rate.

Stocks are ownership in part of a company, you are becoming part owner of the business. This allows you to potentially receive profits the company allocates to its owners – profits are paid out as dividends. A stock can appreciate in value, based on the success of the company. Higher risk but have good long-term potential to make bigger profits.

Mutual funds are a pooled collection of stocks and bonds, overseen by a professional manager. Mutual funds often focus on a specific type of investment; small companies, large companies, bonds, or real estate. They can appreciate in value and can pay out in dividends. High to low risk, depending on the type of fund.

Precious metals can be invested in; small part of a portfolio which appreciates over time – a form of financial protection, in lieu of cash. Over the long-term, precious metals are low risk; in the short-term, they can be very volatile in value.

 

Property – alongside cash, bonds and shares, property is one of the four most common types of investments. Property investment takes many forms, from pooled funds to buying a business property to work from or let out. This guide covers the potential risks & rewards, and where to go to learn more.

To know more about business funding options, please enter your contact details (secure site); only to be viewed by nationally qualified advisers in your local region who will contact you back…

 

Please Note: The contact information you have provided is solely used to assist us in providing you with more information about the business 

 

  1. Business Loans – How it Works (what’s it all about)

Traditionally a new business would approach a bank for a Start-Up Loan. Our scheme is a great alternative for individuals or SME’s looking for business loans to fund their start-up. We give you the opportunity to borrow form £1,000 to £1M+ at a fixed interest rate and access to free business support to help you succeed.

On top of our small business funding services, we offer mentoring, guidance and all the support needed to help you get your company off the ground. You can ask us about anything, from start up finance to marketing. For more information please enter your contact details into our simple Enquiry Form…

A loan is credit, usually in the form of cash you borrow and repay over an agreed length of time. Banks, other businesses and friends and family can provide businesses with loans.

As well as repaying the loan amount you’ve borrowed, you normally have to pay interest. The amount will depend on:

  • How long the loan is for
  • How much borrowed
  • Whether the loan is ‘secured’ – e.g. if you own your home and agree to transfer ownership to the loan provider
  • Other factors such as the Bank of England interest rate
  • The interest rate may be: fixed, as not to alter for the length of the loan
  • Variable rates will alter with the Bank of England base rate or the bank’s cost of borrowing

Loans are generally suited for:

  • Paying for business assets – e.g. vehicles or computers
  • Start-up capital / cash-flow
  • Regular payments, where the amount of money you need won’t change

It’s not a good idea to take out a loan for on-going expenses – difficult to keep up repayments.

Advantages for Loans include:

  • Loans are not repayable on demand so guaranteed the money for the whole term (generally 3 to 10 years)
  • Loans can be tied to the lifetime of equipment or other business assets borrowed against to pay for
  • Don’t have to give the lender a %percentage of profits or share in the  company / business

 

Disadvantages for Loans include:

  • Loans aren’t flexible – e.g. may have to pay charges if you repay early
  • Might struggle to meet monthly payments if customers extend their credit or default on payment
  • If the loan is secured against a property or assets (e.g. your home) you could lose them if you don’t keep up the payments
  • The cost of repayments for variable rate loans can alter, making it harder to plan monthly business finance 

 

To know more about business funding options, please enter your contact details (secure site); only to be viewed by nationally qualified advisers in your local region who will contact you back…

Please Note: The contact information you have provided is solely used to assist us in providing you with more information about the business
  1. Small business grants – How it Works (what’s it all about)

Small business start-up grants are Not that easy to come by, however there is funding available for those in the know! Please contact us for top-tips to help locate business grants, navigate the application process and find out more about organisations such as The Prince’s Trust and CDFIs.

 

A grant is an amount of money given to an individual or business for a specific project or purpose. You can apply for a grant from the government, the European Union, local councils and charities.

You don’t need to pay a grant back, but there’s a lot of competition and they are always awarded for a specific purpose or project.

Advantages for Grants include:

  • Won’t have to pay a grant back or pay interest on it
  • Won’t lose any control over your business

Disadvantages for Grants include:

  • Have to find a grant that suits your specific project, which can be difficult – we can give guidance for free
  • A lot of competition for grants
  • You’ll usually be expected to match the funds you’re awarded, e.g. a grant might cover part of the cost of a project, the remainder is funded privately
  • Grants are awarded for proposed projects, not ones already started
  • The application process can be time-consuming
  1. Business Overdrafts – How it Works (what’s it all about)

An overdraft is a credit facility agreed with a bank. It allows to temporarily spend more than in your account to cover short-term financing needs.

It should Not be used as a long-term source of finance – if an overdraft is regularly used a bank may question whether there is financial difficulty.

For the extended credit, interest is charged on any money used and there may also be a fee.

Business overdraft features:

  • Increase or decrease overdraft limit as circumstances change
  • Only pay interest on overdrawn balances, which you can repay at any time
  • Interest is calculated on daily overdrawn balances, at an agreed margin over the Bank of England Base Rate
  • Fees and interest are debited form the current account on the Bank’s usual charging dates either monthly or quarterly
  • Overdrafts are repayable on demand and typically reviewed annually
  • Overdrafts are subject to application and status

Advantages for Business Overdrafts include:

  • Flexiblity – only borrow what is needed at that time, making it cheaper than a loan
  • Quick to arrange
  • Normally won’t be charged for paying off the overdraft early

Disadvantages for Business Overdrafts include:

  • Will be a charge to extend the overdraft
  • Could be charged for going over the pre-agreed overdraft limit
  • Bank can ask for the money back at any time
  • Can only get an overdraft from the bank you hold your business current account with

 

  1. Leasing and Asset Finance – How it Works (what’s it all about)

Leasing or renting business assets (e.g. machinery or office equipment) can save the initial costs of buying them outright, but funding is still needed.

Advantages for Leasing include:

  • Access to a high standard of equipment the business might not have been able to afford
  • Interest rates on monthly installments are fixed
  • A less risky alternative to a secured bank loan – if payments aren’t made the asset is secured but not, for example, a home!
  • The leasing company carries the risks if the equipment breaks down
  • As long as regular payments are made for the period of the lease, the agreement can’t be cancelled
  • Widely available

 

Disadvantages for Leasing include:

  • Can’t claim capital allowances on a leased asset, if the lease period is less than 5 years (or 7 yrs in some cases)
  • Can be more expensive than buying the asset outright
  • Long-term contracts can be difficult to cancel early
  • May have to pay a deposit or make some payments in advance

 

To know more about business funding options, please enter your contact details (secure site); only to be viewed by nationally qualified advisers in your local region who will contact you back…

Please Note: The contact information you have provided is solely used to assist us in providing you with more information about the business

 

  1. Invoice Financing; Factoring & Discounting –

How it Works (what’s it all about)

Invoice Financing is where a third party agrees to buy un-paid company / business invoices for a fee. Invoice financiers can be independent, part of a bank or financial institution. In the UK there are 2 types of invoice financing.

‘Factoring’ – also known as ‘debt factoring’ – involves an invoice financier managing a business’s sales ledger and collecting money owed by their customers directly i.e. out-sourcing a business’s credit control.

When a business invoice is raised, the invoice financier will buy the debt owed by your customer.

  1. The financier makes a percentage of the cost (usually around 85% the value of the invoice) available up-front.
  2. The financier collects the full amount directly from the customer.
  3. Once the financier has received the funds from the customer, they make the remaining balance available to the business.
  4. The business has to pay a discount charge (interest) and fees – the amount varies on which invoice financier used.

‘Invoice Discounting’ is where the invoice financier doesn’t manage the company sales ledger or collect debts. Instead money is leant against any un-paid invoices (an agreed %percentage of the total value) & a fee is paid for the services.

As customers pay their invoices, the money goes to the invoice financier. This reduces the amount owed, which means the company can borrow more money on invoices from new sales up to the pre-agreed %percentage.

The company is still responsible for collecting debts if they use invoice discounting, this service can be arranged confidentially so customers won’t find out.

Worth noting; both kinds of invoice financing (factoring & discounting) can provide a quick boost to a business’s cash-flow.

Advantages for Invoice Financing:

  • The invoice financier will look after the sales ledger, freeing time to grow the business
  • Financiers credit check potential customers as to trade with customers who pay the terms agreed
  • Financiers can assist in negotiating better terms with suppliers

Advantages of Invoice Discounting include:

  • Confidentially arranged contract so customers won’t know borrowing against their invoices
  • Maintain closer relationships directly with customers, due to still managing their accounts

Disadvantages of Invoice Financing:

  • Lose profit from orders or services provided by business
  • Financiers will only buy commercial invoices
  • May affect ability to obtain other funding, as there won’t be any ‘book debts’ available as security

Disadvantages of using Invoice Factoring:

  • Customers may prefer to deal with company directly
  • May upset the client relationship if the invoice financier deals with them badly

 

To know more about business funding options, please enter your contact details (secure site); only to be viewed by nationally qualified advisers in your local region who will contact you back…

Please Note: The contact information you have provided is solely used to assist us in providing you with more information about the business

 

 

Am I eligible for invoice factoring?
  • You are a business based in the UK that sells to other companies
    in or outside the UK
  • You have at least £50,000 in annual turnover or are a strong startup
  • Your invoices are issued with trade credit terms of 14 – 90 days
Why use us?
  • We are one of the UK’s largest Finance brokers
  • We have relationships with all of the major banks & independent financiers
  • All quotes come from recognised & established UK finance companies
  • Our Service is FREE, we will never ask you for any money
  • Quotes tailored to YOUR business needs

Please fill in your details on the Contact page to find out more information about this course.