Whether you’re starting out in business, thinking of expanding, or just need to get through a rough patch, raising finance can be difficult – and can often come down to ‘who you know’. At our A4G Growth arm, our partner Will Richardson helps business Owners, wherever they are in their business journey, to access trusted finance funders, providing tailored advice on the best options.

So, what are the options?

If you’re facing a short-term cash flow problem, you could look into:

  1. Loans and Overdrafts

Where any cash flow issue is anticipated to be short term, and you have a reasonably good credit rating, it may be possible to approach the bank for a loan, or an extension to your existing overdraft. Generally, loans will be more cost effective, because the interest charges are lower, although most lenders would wish to lend over a period in excess of 1 year. Where the cash flow shortfall is expected to be under 6 months, it may be more beneficial to go down the route of the overdraft extension.

  2. Factoring and invoice discounting

Both Factoring and Invoice Discounting are options can get instant access to cash tied up in invoices, via a bank on specialist provider.

Factoring is a way to free cash that is tied up in outstanding invoices, giving you access to your money quicker. A factoring company will essentially act as a middle man between you and the business you have provided goods or services to, paying you up to 100% of the invoice value within a day or two, and then collecting the payment from the customer.

Choosing a factoring service will improve your cash flow, but also free up the time you spend chasing your customers for late payments, as it is all taken care of. Much like outsourcing your sales ledger. Getting paid quicker means getting quicker payments out to your suppliers and won’t limit your opportunities to thrive and grow.

There are independent factoring companies out there, but it is also a service offered by some banks (subject to eligibility).

Invoice Discounting is similar in nature to factoring, except you continue to have responsibility for the collection of your payments.

The invoice finance company, or bank will give you up to 90% of your cash owed in invoices within 1 to 2 days, making sure your business can keep moving. Invoice discounting differs from factoring only in that you will continue to manage your sales ledger and credit control processes. You will keep responsibility for collecting your money owed, meaning that the invoice discounting service is entirely confidential.

There is a costs to both Factoring and Invoice Discounting, and the cost really depends on what you need, for how long, and who you’re opting to make the arrangement with (a bank, a specialist provider).

This is why we connect our clients with Will Richardson, our partner at A4G Growth. He can contact bank managers, and his own professional contacts in this field in order to get you access to the best option for you.

  3. Asset Finance

Asset finance is a cashflow solution that uses your assets as a security to borrow money against what you already own. Depending on your business, assets could be commercial vehicles, machinery, equipment, and even buildings.

Sale and leaseback allows you to sell back that asset to a bank or finance funder in return for cash, to be replaced by a monthly rental payment. This will come at a cost, but it may help as a short term injection of cash into the business when you’re having cash flow issues.

This is only a recommended option if you’re able to ensure that repayments can be met.

  4. Peer to peer lending

Peer to peer lending is operated by a number of internet-based platforms designed to cut out the middleman (i.e. the banks) between lenders and borrowers. The most well-known of these is Funding Circle which a number of clients use. Businesses can advertise their proposition on the platform and potential lenders can “bid” to lend money to that company.

Lenders get the benefit of a better rate of interest than they might get on deposits and borrowers can either borrow money that a bank was not prepared to lend or benefit from a lower interest rate than they would otherwise pay.

The downsides of this form of lending are the time it takes to put together your proposition and the fact that most platforms require the owner-manager of the business to provide personal guarantees.

  5. Equity Finance

Equity finance is a method of raising capital by selling shared in your business to external investors. If you’re a young company, you may look to sell shares to a Business Angel – a wealthy individual or group making use of their finance by investing in start-up or early stage businesses.

Business Angels can help by:

  • Providing capital
  • Giving you access to new networks, sharing contacts
  • Offering experience and advice in your industry or in management
  • Acting as a mentor as well as investor

Choosing an investor is about more than just cash. The right investor can help you to achieve growth by sharing their own experience your sector and offering strategic guidance to drive success.

But there are several things to consider when it comes to financing your business in this way:

  • The business needs to be sufficiently attractive to investors for it to be successful – If the business is struggling to make sufficient profit to cover its outgoings, it is unlikely that an investor would be interested in purchasing part of it.
  • You will be giving up a share of future profits – So you will need to consider whether you’re able to take reduced drawings from the business going forward.

Finding a Business Angel isn’t the only avenue to take. There are a wide variety of options for obtaining equity finance, depending on where your business is at and the industry you work in.

We’re often asked the best way to finance a business in order to get established, or to drive growth. But in truth, the answer really depends on you and your business. This isn’t a one size fits all situation, and you need access to the right people for your specific requirements.

Would you rather spend your time stumbling in the dark dealing with paperwork and red tape, worrying that your application may be unsuccessful? Or use our knowledge and experience, and take advantage of our contacts? We can take the whole process off your hands and let you focus on your business itself. On doing the bits that you love.

Fill your details in below and let us know a little about your business needs, so that we can find the best solution for you.

Want to find out more?

Call us on (01474) 853856 and we will put you in contact with one of our advisers, or send us an enquiry by clicking below.

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