Business development frequently requires external funding. However, with so many options available, it can be difficult to determine the right one for your organisation and your specific circumstances. Here is a quick guide to the main funding options for business growth.
If the need for finance is sudden, an unsecured loan can be a rapid method of raising capital. Unsecured loans are an alternative to more cumbersome finance methods, such as mortgaging, and can be used when no assets are available – depending on your company’s credit history. In the UK, loans of up to £250,000 are entirely possible.
Unsecured loans are short-term often up to 3 years. They are offered based upon good financial history and sometimes a personal guarantee.
Use this method for:
- Sudden growth
- Expansion opportunities
- Final VAT demands
- Unforeseen business costs
- Cyclical business
2) Secured Loans
Whereas short-term loans usually cater for unexpected financial needs, long-term loans are part of on-going organisational planning. They combine up-front capital with small, manageable repayments, and are guaranteed against an asset. These types of loan are central to business finance, and are used for:
- Funding a start-up (this may need to be secured against the personal property or assets of a director)
- Expansion (including Acquisition)
- Ensuring greater financial efficiency and security than relying upon cash flow alone
3) Investment Loans (Including peer-to-peer lending, via a broker)
Peer-to-peer lending is a form of third-party investment. There are many different varieties, but the most common involves a broker matching a company with a guaranteed investor or investors. Brokers have extensive networks, and can partner specialist investors with growing companies. Crowdfunding is also increasingly popular for a variety of purposes, including land purchases and property development.
Use this finance method if:
- You want finance and guidance
- You don’t mind an investor’s influence on your company
- You are looking for a long-term growth solution
- You’ve been refused credit through a bank or traditional lender
4) Invoice Financing
Day-to-day cashflow problems can seriously hamper growth plans. However, it is easy to become entangled in unpaid invoice chains. Invoices that are gathering dust do nothing to help financial strategy.
Invoice financing involves selling invoices to a lender for the immediate release of capital. This helps regulate cashflow and means you can guarantee repayments on investment loans, tax liabilities, suppliers, payroll etc.
Use invoice financing if:
- Unpaid invoices are making cashflow unpredictable
- Chasing invoices is draining time and resources
- You need to demonstrate consistent income
5) Revolving Credit Facilities
Revolving credit facilities work in a similar way to an overdraft or credit card. Businesses can dip into the loan as and when they need to. The financial agreement renews automatically, so once the amount has been repaid it remains available for later use.
This type of credit is designed for times of uncertainty. It may remove the hassle of having to apply for multiple loans or extensions and can offer a reliable safety net whilst funding growth.
Revolving credit is ideal for:
- Bridging cashflow gaps
- Ensuring a safety net
- Flexible short-term funding
6) Leasing & Hire Purchasing (Asset Finance)
Equipment is often crucial to growth. However, the cost of boosting productivity with new plant or vehicles can be daunting. Leasing and hire purchasing allows companies to either lease assets or buy them gradually.
Leasing is similar to renting. The finance provider owns the asset, and leases it to the organisation. It is ideal for:
- Upgrading assets without huge capital outlay
- Flexible use of an item
- Short-term equipment use
Hire purchasing is similar to a mortgage. It involves paying for ownership of an asset in monthly instalments over a long period of time, after which ownership is yours. It is ideal for:
- Long-term equipment investment
Which Is The Right Funding Option For My Company?
There are many different variations on the five options outlined in this article. To find out which is the best for you, talk to an experienced financial advisor. At Business Finance Solutions Ltd, we offer a free initial consultation. Call us today on 0345 50 50 8888.
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