Raising Finance To Grow Your Business
Business growth is absolutely critical to the long term prospects of all companies — new and old alike.
And if growth is the objective, the method of securing that growth will vary. It might be through expanding production capabilities, enhancing the sales and marketing function or sometimes through acquiring another company, to accelerate the growth exponentially.
Organic growth is fine but it’s often not the smartest route to achieving scale. The challenge which all businesses grapple with is how to fund their growth sustainably and without impacting cash flow, through excessive loan repayments.
SOURCES OF BUSINESS FINANCE…
Before listing the various options which business owners have, to inject capital into their business, it’s important to make the key distinction between debt and equity models.
Business owners can either choose to borrow the money they need and pay it back later. Otherwise, they can offer equity to investors in the form of selling shares in their company.
The devil is in the detail and will depend on the terms available from lenders and investors, as much as the personal preference of the owners and the unique circumstances of the business.
The terms available will be influenced by a range of factors, not least company size, collateral, the balance sheet, size of the capital requirement and how much control might be relinquished.
DEBT OPTIONS:
> Specialist Finance
> Bank Loan
> P2P Lending
EQUITY OPTIONS:
> Private Business Investor / Angel Investor
> Venture Capital
> Crowdfunding
A BIT MORE DETAIL ON EACH…
> Specialist Finance
There is no shortage of specialist lenders who can offer services such as point of sale funding, consumer finance, secured lending, bridging finance, invoice finance and small business lending.
> Banks Loans
Pretty much all high street banks can provide lending on flexible payment terms. But be clear on what you will do with the funding, be prepared to go through your business plan and concrete numbers with the banks… and make sure you’re comfortable with how you will repay the loan and maintain adequate cash flow.
> P2P Lending
Potentially a more straightforward option to high street lending, but equally strict on repayment rules. The idea is that a P2P platform will match individual investors directly with businesses on pre-agreed payment terms.
> Private Business Investor / Angel Investor
High Net Worth Individuals (HNWIs) or Ultra-HNWIs. Often assumed to only invest only in start-ups and early stage companies, but will also fund more established small and medium sized businesses (SMBs). Business investors generally invest in exchange for equity in the business and will sometimes provide their expertise as well.
> Venture Capital
Venture Capital (VC) firms are more likely to provide multi-million pound investments and their equity stake will not be small. Founders of businesses which attract VC funding will need a compelling vision, clear business plan and a strong team around them.
> Crowdfunding
There are some fairly mature crowdfund platforms out there now, which won’t suit every type of business. It tends to work best for innovative B2C companies and businesses run by founders with a solid track record. Crowdfunding platforms will allow private investors to participate in owning a company in a small way and are effective at marketing your business to a wide audience.
OTHER OPTIONS…
> Fund It Yourself
Sounds obvious, but if you have the funds yourself, believe in what you’re doing and feel the risk is acceptable — why not invest the capital yourself? For many SMBs, this can take the form of a director’s loan.
> Small Business Grants
An ever-changing landscape, but you might have options to apply for a small business grant to cover premises, machinery and hardware. Your eligibility is based on a range of criteria, including where you are based. In the UK, the region where you are based can make a difference.
WHICH OPTION SHOULD YOU CHOOSE?
The basic choice comes back to the DEBT versus EQUITY question.
Choosing debt can have unintended consequences if there are bumps in the road and the repayments negatively impact cash flow.
Offering equity in exchange for investment can dilute your ownership, but provide a route to faster growth.
