Funding for Business Growth
Growing your enterprise, will require an increased amount of working capital to fund your growth.
Not having sufficient working capital in your business is just like running your car on empty all the time. This results in you driving your car slowly, reduces the distance you can travel, and you run the risk of breaking down. When you lack funds within the business you effectively do the same.
This workbook explains funding options in detail.
There are seven main forms of increasing your working capital to fuel your growth
- Your own money
- Your own profits
- Your Friends and family’s money
- Borrow the money.
- Sell your shares for money.
- Government money
What you can use finance for
You can use finance for pretty much any purpose.
- Take on more staff.
- Increase your marketing spend.
- Buy in professional help to grow your business.
- To be able to buy in more stock.
- Fit out your shops, warehouse, office etc
- Buy computers and other costly kit.
- To pay your VAT or Tax bill.
- Pay for staff training.
- To buy or lease your company cars.
- To buy more machinery.
- Open up a further outlets/ shop /office.
- Pay off higher risk lending such as an overdraft.
- To buy another company
Your Own Money
During the start-up phase, we believe that you should use your own money to part fund your growing business. You should also sell assets that you don’t really need, to fund your business.
We also believe that for the first few months you must personally feel the pain of spending your own money.
Secondly, you should not ask others to invest or lend to your business without first investing your own money.
You should only use a modest proportion of your own funds to finance your business.
We believe in you retaining a safety net of savings, just in case things don’t go to plan.
Having cash set aside should also ensure that you make sounder decisions. This is because you are likely to be more relaxed and less emotional when you need to make important decisions.
Your Business Profits
Using your businesses profits exclusively to funding your business is often referred to as Bootstrapping or ‘growing organically’
We applaud Bootstapping for the first 6 months or so because if you can’t make your business work without external funding, you are unlikely to be able be successful with other peoples money.
After 6 to 12 months, Boostrapping is likely to bring your growth to a stop. Before this point, raising funds from other people to fuel your growth will be critical.
Don’t believe the hype when people tell you that you must grow organically or by bootstrapping.
A successful entrepreneur would never tell you this.
Your Friends and Families Money
If you have a truly great idea and you have proven your model, then we encourage you to look to your friends and family to raise a proportion of the funds your business needs.
Please don’t ask for more money than you know your relatives can afford to lose!
Nor should you ask for money from friends and family until you have utilised your own savings.
If you later wish to raise funds from a business angel, they are likely to expect that you initially raised money from your from friends and family. Why should they invest in you if you have not invested yourself?
Borrow the Money
The Start Up Load Company (SUL)
If you have been trading for less than two years, you could access up to £25k per director from the Start Up Loan Company.
Even if you have a mature business, you may be able to access these funds for a new enterprise or spin off.
The Start Up Loan Company is a Government backed body set up to help Start Ups. The Start Up loan is a personal loan with rates of less than 6.2% and payable over 5 years.
We can help you with the process and this includes helping with the Business plan, developing your model and your finances.
This is by far the most popular form of finance.
A business loan, as the name implies, give you the funds you require, and you pay these back with interest.
Each funder has their own criteria, and these vary considerably. This makes sourcing the ideal finance provider almost impossible for any business owner without support from a finance expert.
A number of funders require your business to be profitable, yet with others, your turnover is more important.
The one thing that is not in doubt is the considerable volume of funds available for virtually any business wishing to grow.
Rates do vary from 5% to 70% pa. The rate is a reflection of the risk perceived by the lender and the type of business the funder prefers to lend to.
Loan periods vary as well from a few months to five years.
The great news is that some loans being processed in less than 48 hours.
Funding For Business Growth Tip 1. It is vital that you carefully choose 4 or 5 of the 200 lenders and focus on them. The rest are likely to either be (a) inappropriate for your business and (b) likely to turn you down anyway.
Funding For Business Growth Tip 2 Just because a funder is willing to back you does not mean that you should simply agree. You may have approached a funder who is not an ideal fit for you.
The Growth Gurus have access to all 300 business loan providers, we will understand which funders are ideal for you and we can increase the chance of receiving the ‘yes’
Regional Growth Funds
Most regions in the UK have Regional Growth Funds and you should be able to access these funds if your business resides in these areas.
The interest rates are typically much lower than commercial funders and Regional Growth Funds should be one of your first options.
We have access to all the Regional Growth Funds.
Invoice discounting enables you to be paid from your invoice, before the invoices are due to be paid.
You should be able to select which invoices you need finance to give you part of the working capital you require.
Funding For Business Growth Top Tip. Most financial experts suggest that this form of funding is used (a) selectively and (b) only when you are growing your sales quickly and (c) should only form part of your funding strategy.
Choosing the ideal Invoice Discounting provider is a minefield and we have access to all providers.
Asset finance enables you to finance assets you need to run your business.
Assets can include, office equipment, vehicles, machines etc.
You can also refinance the assets that your business already owns to raise the funds you need.
Asset finance may cover all of these areas;
• Refurbishments – furniture, ceilings, flooring, lighting, partitioning, security
• Vehicles – Cars, Vans, HGV, Fork-Lifts, Trailers. (Business & Personal Finance)
• Plant & Machinery – All Yellow Plant and Construction Machinery
• Engineering & Manufacturing Equipment – Production lines etc.
• IT Equipment – All Hardware & Software (Including Annual Subscriptions)
• Printing Equipment – Digital & Litho Presses and All Finishing Equipment
• Audio Visual Equipment – All Camera Equipment, Lighting, TV, Projectors, Sound Systems etc
• Office Equipment –Printers, Photocopiers, Telephone Systems, Furniture, Visual Displays, Epos
As with any other form of funding, there is a plethora of providers and their rates and criteria vary considerably. We have access to the whole of the Asset Finance market.
This type of funding is known as ‘bridging’ because it’s designed as a short-term solution for your business.
You can also use Bridging when buying or refurbishing property, although you will need to deal with an FCA regulated broker if the loan is secured against private property.
Rates vary considerably and are dependent on many factors. However, expect to pay more than twice the rate you pay for longer term secured loans.
There are a vast number of Bridging providers and we have access to the whole of the market.
Pension Backed Funding
Pension Backed Funding (PBF) is proving increasingly popular.
PBF entails setting up a SSAS company pension scheme and transferring some or all of your old pension schemes into it.
The SSAS Pension may then lend up to 50% of the value of the fund to your own business. Rates are typically around 3% pa over 5 years. As the Trustee, you make this decision.
So, if you transfer £200,000 from your old pensions into the SSAS you can then invest up to £100,000 into your own business. This is your call.
Many suggest that this form of funding should not be used without funding from elsewhere. It is also said that PBF should only ever used by companies with a strong management team and support.
If you wish to set up a SSAS loan, The Growth Gurus have had almost a decade of experience.
If your business buys from oversees then you may benefit from Trade Finance.
Trade Finance funders pay overseas suppliers on your behalf to enable the import of goods into the UK.
They will often fund up to 100% of the landed cost of stock, including VAT, Duty and Freight charges.
Funders often will also pay deposits to suppliers prior to the manufacture of products.
We have access to all the Trade Finance providers in the UK and can source the most ideal funding for you.
Stock Finance is designed for companies who hold a great deal of stock to ensure that they can always supply their customers quickly.
Firm orders for the onward sale of stock are not always possible in today’s commercial environment.
There are only a few providers of this form of funding with rates and criteria varying considerably. A finance expert such as the ones on the finance team at the Growth Gurus ideally negotiates rates and terms.
Sell Your Shares
This form of funding entails sourcing an investor or investors who will invest money into your business in exchange for shares.
Many believe that raising money by selling your shares should only be considered if you have no choice.
You will be selling your shares one day and selling a proportion very early in your development may result in you regretting the decision when you realise that the shares you sold in the early days are now worth £millions.
What can be even more upsetting are the restrictions often placed upon your activity. Let face it, selling shares means you lose some or a great deal of control of your business.
There is a time though when investment capital is a great idea, or you have little choice.
Prior to going to investors, you should always investigate all your finance option first. Frankly, your investors will find it very odd if you haven’t and any investor that tells you otherwise is one to be very wary of.
Private Equity Investment comes under many names; Angel, VC, EIS fund, family office and Private Equity.
You will need to prepare well if you wish to attract investors. You will need to create a business plan and Deck that will be appealing to investors. This will often be a very different document than you used for debt funders.
If appropriate, you will need to seek pre approval, from the HMRC to gain SEIS or EIS status.
SEIS and EIS is a scheme where the investor receives a considerable tax benefit. Having SEIS or EIS status will often improve your investment provider options.
You will need to create and then pitch your business to the investors at a number of pitching events. Preparing for this takes expert tuition so that when you pitch to investors, you will put across a great message where an investor decides to invest in your business.
You may find yourself pitching to hundreds of investors until you find your ideal match.
Many Angel, EIS and SEIS Investors tend to look for an emotional attachment to your product and may also wish to help you with hands on support. This may or may not be great news! This form of investor is still very interested in their return so please ensure that your pitch emphasises, this.
Funds and institutional investors tend to be far more interested in the return.
Funding For Business Growth Top Tip. Business Angels are not always as angelic as we would want them to be. There are a number of Angels who may have nefarious reasons for investing in your business. Such investors may create traps that may result in them taking over your business.
Crowd Funding is a form of equity finance and can raise considerable amounts of money, however, raising the money is likely to be both challenging and time consuming.
Preparation is key to the success of raising money with Crowd Funding and the whole process will take at least six months. This is contrary to what most platforms may tell you. That’s possibly because you pay them to list on their site and they have no interest in telling you that raising funds on a Crowd Funding site is very hard work.
One of the other downsides of Crowd Funding is that it will result in the loss of a proportion of your shares. However, the amount of shares you give away is often less than with as an Angel, EIS or other private equity provider.
If you are happy to spend a great deal of your time dealing with a raise with a Crowd Funder and you don’t mind giving away equity, then Crowd Funding may be perfect for you.
R and D Claims
An often-overlooked method to create the funds you need is a Research and Development (R and D) claim.
The average claim for a client is £40,000 and you have no need to sell your precious shares or repay the money.
If you have developed your process, systems or products then it is likely that you could benefit from a Research and Development claim.
This may result in your business receiving a cheque from the HMRC, even if you have not paid them anything.
There are many consultants in the market to choose from and the Growth Gurus have a panel of the most experienced.
Securing grant funding could really help your business develop and grow. However even experts can find it difficult to keep track of the hundreds of different grant schemes, which keep appearing and then disappearing.
You need to identify relevant grant schemes and understand whether your business is likely to qualify. You also have to understand the application process and decide whether it is worth applying.
You must be ready to put up some of your own money
Grants typically cover 15-60% of the total finance required for a project. It is extremely rare for a grant to finance 100% of the costs of any project.
Even if a larger proportion of the project cost is available, you will still need to invest time and resources in researching and applying for the grant.
If you would like to learn more about business take a look at our Business Upgrade Program.
The Next Step
If you think you are ready for funding check my diary and book a call to suit your diary and we can have a chat. We have access to 300 funds and 300 business angles.