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Business finance – where to start

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If you own a business, be it a new start up sole trader or a long established limited company, you have probably never had so many options when it comes how you arrange finance.

On the plus side the increase in lenders and product types has made money far easier to come by than it was 4 or 5 years ago. Generally, interest rates are also at an all-time low. However, it’s not all good news.

With seemingly never-ending choice and new providers entering the market on regular basis, knowing who to talk to can seem like a daunting task and can often lead to inaction.

The Treasury has reported that as little 3% of business owners seek alternative funding options after a bank rejection. This lack of finance can be stifling to anyone looking to grow or expand and can of course have a knock-on effect to the wider economy both local and national.

So what do you do if you are struggling and not sure what to do next? Take a look at the following options:

Equipment leasing: This is a method to obtain equipment without having to put pressure on your cashflow. A lease allows you to have use of a given item of equipment for an agreed period of time. You retain all of the advantages and responsibilities of ownership (the use of said machine) without the disadvantages – disposal, depreciation etc. Leasing is also off-balance transaction so potentially you can off-set the interest against your future, taxable profits.

Who is it for: Any business regardless of industry sector or time trading, including new-starts, could benefit from a lease.

What is it for: Practically any type of equipment at all – however the rule of thumb is if anything that depreciates or has a limited usage it should be leased. CCTV, IT, telecoms, furniture, storage equipment, EPOS, catering, fitness and so on.

Who offers it: Traditional leasing lenders and private/challenger banks as well as some high street banks.

Unsecured loans: This is perhaps one of the most straightforward forms of funding regarding the result. The end product is you have a one-off sum of money in your bank account which is paid back over a pre-agreed period of time. This landscape was once dominated by the mainstream banks, but now there are probably more commercial loan providers than ever before.

Who is it for: This type of funding can be harder to come by if you don’t have much of a trading record behind you (normally two sets of financial accounts is the minimum lenders look for), however there are providers out there who offer solutions to early stage companies but tend to limit the term to a maximum of two years.

What is it for: Stock, staffing costs, marketing push or PR campaign – pretty much any business-related purpose. It’s less effective if you have an ongoing or long-term cashflow problem and its better if it’s used on a specific project, not so much for propping up working capital.

Who offers it: Mainstream bankers, peer-to-peer lenders, challenger banks as well as other private finance companies.

Invoice finance: A long-established form of funding, and in simple terms allows you to close the gap between when you get paid and when your suppliers need payment. There are three main forms of invoice: finance; factoring; and discounting & selective. Factoring normally includes a credit control function whereas discounting does not. All forms can be either confidential (non-disclosed) or not (disclosed), so your clients wont necessary be aware that you are using it.

Who is it for: A big positive about invoice finance is that practically anyone can have a facility, even those who are yet to trade or have a difficult credit history. You must be working in a business-to-business environment and offer terms to your customers.

What is it for: It’s a great way to help resolve any cashflow issues you might having such as waiting 30 days, 60 days or even longer to get paid whilst still being chased by your suppliers. It redresses the imbalance between creditors and debtors.

Who offers it: A large variety of lenders, many of which won’t be that well known unless you have come across them directly, but includes most high street banks, challengers and specialist invoice finance lenders.

The above highlights the main, and more traditional, forms of business funding. However, there is plenty more out there to consider and it all very much depends on your own circumstances and what you are looking to achieve.

Each product type, service and lender will have their own nuances in terms of how they work and what they are looking for in a potential client. This is why it’s vital that you consider working with experts in the field to help you navigate what can be a complicated but incredible important aspect of owning a business.

Source: Wales Business

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