If you’ve got big plans for the future of your business, then it’s likely you need access to finance to help fund that business growth.

For owners and entrepreneurs, navigating the numerous funding options to finance growth can be a daunting task. That’s why it’s essential to be proactive and take steps to increase your chances of securing the funding you are looking for.

Today, UK businesses are seeking increasingly diverse ways to raise money. Whatever route you decide to take, there are a few basic rules to follow to maximise the opportunity of raising finance successfully.

So, where does that additional money for growth come from and how do you improve your chances of raising the capital you need?

What are my finance options to support growth?

The types of finance available to you will depend on a number of factors including:

• What you require the funding for.
• How much you are looking to raise.
• The terms and conditions you are willing to accept.
• Your stage in the business lifecycle.

Self-funding

For many start-up businesses, self-funding is an initial option. However, there are a few things to consider. Firstly, how much do you need? If you want to start a business from home and only need a few thousand pounds, then that may be sufficient. However, if you need hundreds of thousands of pounds’ worth of equipment, then it’s less likely to be a viable or sensible option.

Friends and family

There can be clear benefits, but also some obvious dangers of calling on friends and family for additional funding. If you’ve got a well-thought-out business plan with defined milestones and your friends and family have access to it, allowing them to make an honest appraisal of the opportunity, then that’s realistic. But, if you go down this route, always make it a formal arrangement, as your friends today might not be friends tomorrow.

Bank loans

The type of commercial loan that is right for you will depend on where your company is in its lifecycle.

Bank loans can be relatively straightforward to secure as long as you can prove you can make repayments, can provide security and have a good credit rating. However, many banks will require a solid business plan with all the necessary figures and forecasts, as well as a clear strategy on how you’ll use the loan and how it’ll be repaid.

Secured commercial loans may be cheaper because the risk to the lender is minimised. Unsecured loans may be a more viable option for companies that lack substantial tangible assets.

There is a growing number of specialist lenders and challenger banks that are making commercial loans more accessible for SMEs.

Government grants

There may be government or local authority grants available to help businesses in their early stages. There will be different criteria and application processes for each type of grant. You can find links below to key resources for finding grants.

England: Business Finance Support Finder

Scotland: Scottish Funding Opportunities

Wales: Business Grants

Ireland: Enterprise Ireland

Peer-to-peer (P2P) lending and crowdfunding

While both crowdfunding and peer-to-peer (P2P) lending involve raising money from a group of individuals, they are two different concepts. Crowdfunding is a method of raising capital by collecting small amounts of money from a large number of people. In comparison, P2P lending is a process in which individuals lend money to borrowers with the expectation of repayment, including interest.

P2P lending and crowdfunding are often more suitable for smaller businesses. A company can apply for this type of funding online. They usually attract savers seeking a higher return on their investments.

You’ll need a strong business idea, a well-crafted business plan, and the ability to market your company to many potential small investors.

This type of funding can be beneficial for both business start-ups and established companies, allowing them to fund future expansion, projects, or new products.

Other lenders and sources of finance

There are numerous other specialist lenders catering to specific sectors or types of borrowing. These may include specialist property lenders who’d help you to acquire commercial property or buy-to-let lenders for landlords.

There is also a large selection of lenders if you’re looking to purchase fixed assets for use in your business (such as cars, vans, machinery, etc.) See details on asset finance below.

Other specialist lenders may include those focused on working capital provision, such as Invoice Discounters or Factoring Companies.

Other areas of funding available may be through existing customers or suppliers. For example, asking customers for early payment and negotiating extended credit terms with trade creditors.

Asset finance

Asset finance is a popular funding option for purchasing or leasing business assets, allowing businesses to avoid large upfront payments and thereby improve their cash flow and fuel growth. It enables the company to utilise its assets on the balance sheet as collateral to fund the purchase or lease of the asset.

Asset finance can be used to purchase new plant and machinery, IT equipment, cars, vans and other commercial vehicles.

Asset finance options are:

• Finance lease.
• Operating lease.
• Contract hire.
• Hire purchase.

Working capital finance

Often, whilst growing, businesses can find themselves without enough day-to-day capital. This may be a temporary cash flow shortage, or there may be a short-term opportunity that you want to secure financing for. Types of working capital finance include:

• Invoice finance – where you sell your unpaid invoices to a lender in return for accessing a proportion of the value (up to 90%).
• Structured Asset Based Lending (ABL) – unlock the maximum value tied up in the combined assets within your company, including Debtors, Inventory, Plant & Machinery and Property.
• Trade Finance – enabling the purchasing of goods from overseas where you are otherwise unable to obtain credit from suppliers.
• Working capital loans – offered as both secured and unsecured loans.

Investor options to raise finance for business growth

Equity finance

Equity financing is when you raise money by selling shares in your business, either to your existing shareholders or to a new investor. Equity finance encompasses options such as venture capital, angel investment, and private equity.

Venture Capital (VC)

Venture capital is most suitable for businesses seeking to raise millions. VC is typically an option for early-stage companies with high growth potential or those that have grown rapidly and want to continue that growth.

VC investors are looking to maximise returns, meaning that life with a VC involved can be very corporate, stressful and complex. VC investors often take on a higher level of risk due to the stage of the business and typically seek a controlling interest in the company. However, VCs will share the owners’ desire to succeed. They can help the company by bringing experience, strategic partnerships, and business expertise to the table, as well as assisting with the eventual exit and sale of the business.

Venture capital funding is not easily accessible or obtainable. The process is extremely rigorous and time-consuming. VCs often focus on specific industries, geographies or company stages.

Angel investors

Angel investors (or business angels) are individuals who provide funding and capital for a business in exchange for a return on their investment. (Think of Dragon’s Den!). Many angel investors are current or former business owners, high-net-worth individuals, or entrepreneurs. They will bring access to their business and sector experience and networks as part of the investment, but in return will want good returns and a stake in your business.

Private Equity (PE)

PE is a suitable option for more established businesses and can be utilised to support business growth, particularly for those seeking to expand through acquisition or for individuals undertaking a Management Buyout (MBO).

What is the best funding option for business growth?

The most appropriate option for you to raise finance for your business will depend on many factors, including:

• The amount of money you require.
• Your business stage in the lifecycle. i.e. start-up, early stage, growing or established.
• The size and profitability of your business.
• Assets, security or collateral available to support your request.
• The quality and credibility of your business plan.
• The amount of equity or control you are prepared to relinquish.

Be prepared – Management information and financials

Regardless of the type of finance you are looking to secure, you are likely to require the following:

• A strong and comprehensive business plan.
• A cash flow forecast.
• Copies of full financial statements for the past three years’ trading (if you’re not a start-up).
• Up-to-date monthly management accounts.
• A good credit rating.
• Collateral.

Reasons why your business may require additional finance

1. Expanding or moving to new premises.
2. Hiring more employees.
3. Entering new markets.
4. Launching new products or services.
5. Investing in new technology or equipment.
6. Covering unexpected expenses or financial challenges.
7. Managing cash flow during slower periods or debt restructuring.
8. Investing in marketing and advertising campaigns.
9. Funding research and development.
10. Acquiring another business.

How Barnes Roffe can assist you with raising finance

When seeking business finance, it’s always worth seeking professional advice to help you understand the options for your business, to find the right lenders and secure the best terms.

Here at Barnes Roffe, we have a wide network of contacts to help you access funding options that could save you a significant amount of money. We have strong relationships with banks, secondary lenders, private equity firms and other investors, all of which can assist you in sourcing the right funding package for your business.

Barnes Roffe services to assist you with this include:

• Preparation of year end financial statements in a timely manner.
• Financial forecasting.
• Preparing the business for growth.
• Business planning.
• Preparing management information and presentations for funders.

Contact us today for more help and advice on financing growth in your business.

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