Unlocking Financial Success: Exploring Funding Options for Your Business

Following on from our article on cash flow, I wanted to explore the various ways a company can raise cash to help fund their business venture. Whether you’re just starting out or expanding your existing operations, there are several ways to fund your business. If you have a more established business, you may be able to access a wider range of funding/credit as we’ll see below. Some may be more suitable for you than others, so be sure to conduct your own research to see whether these are viable. At Jacksons Accountants, we offer support for grant and loan applications, should you need it. Get in touch for a free, no-obligation consultation.

Accessing Funding

Personal Savings

This is the most obvious way to start or expand your business. Many entrepreneurs start by using their personal savings to fund their business. Raising funds from lenders is notoriously difficult for brand new companies with no trading history. Therefore, most companies rely on the backing of the owner (you). Because if you don’t believe in yourself, who will? This option allows you to retain full control and ownership of your company.

Family and Friends

If you’re fortunate enough to have friends and unfortunate enough to have family, you can approach friends or family members who may be interested in investing in your business. You could repay it as a loan, or offer them a stake in your business. It’s essential to establish clear terms and agreements to avoid potential conflicts in the future.

Bank Loans

Banks and other financial institutions offer business loans to eligible entrepreneurs. These loans may require collateral and a strong credit history. Prepare a solid business plan and financial projections to increase your chances of approval. Get in touch if you need help pulling together your business plan.

Government Funding

The UK government provides various grants, loans, and support programmes for startups and small businesses. For example, the Startup Loans Scheme. These initiatives aim to promote economic growth and innovation. Research local and national government websites and local business organisations, such as your local Chamber of Commerce to find suitable options.

Crowdfunding

If you have a really innovative idea, but no start up funds, crowdfunding platforms allow you to raise funds by pitching your business idea or product to a wide audience. Supporters contribute small amounts of money in exchange for rewards or equity. Successful crowdfunding campaigns often require compelling storytelling and a strong online presence.

Accessing Credit

For more established businesses, the world of borrowing is much bigger and there are plenty more options. This may be for a business expansion project or perhaps to make managing cash flow easier.

Business Credit Cards

Probably one of the easiest to acquire on this list, business credit cards offer a revolving line of credit that can be used for purchases and expenses. They provide flexibility and convenience, allowing businesses to manage their cash flow and track expenses. However, it’s important to use them responsibly to avoid accumulating high-interest debt.

Trade Credit

If you have good relationships with your supplier or are a well-established business, trade credit is definitely worth exploring. Trade credit is an arrangement where suppliers allow businesses to purchase goods or services on credit, usually with payment terms of 30, 60, or 90 days. This allows businesses to obtain necessary inventory or materials upfront and pay for them at a later date. This is common practice among businesses and is often free. Some companies even offer a discount if you pay early.

Invoice Financing/Factoring

Invoice financing or factoring allows businesses to access funds tied up in outstanding invoices. The business sells its unpaid invoices to a finance provider at a discount, receiving a percentage of the invoice value upfront. The finance provider then collects the full payment from the customers. There are various forms of invoice financing, where you can keep more control over your customers but it is certainly a good way to access funds from your business.

Trade financing

Similar to invoice financing but working the other way, trade finance allows you to delay payments to your creditors by borrowing the money from the bank so that your creditors are paid on time. You can typically borrow money for 30, 60 or 90 days, sometimes longer. This is advantageous if you are unable to get trade credit but are buying goods that take a while to arrive. For example if you buy goods from China.

Asset-Based Lending

Asset-based lending involves using business assets, such as accounts receivable, inventory, or equipment, as collateral for a loan. The lender evaluates the value of the assets and provides a line of credit based on their worth. This type of credit is commonly used by businesses with valuable assets but limited cash flow.

Conclusion

When considering credit options, it’s crucial to carefully assess your business’s financial situation, needs, and repayment capacity. Compare interest rates, fees, and terms offered by different lenders or providers to find the most suitable credit option for your business. Consulting with a financial advisor can also provide valuable insights and guidance.