There comes a time when any business needs to seek funding – to start up, purchase new equipment, increase turnover, take advantage of upcoming opportunities or expand to new premises.
Fortunately, there are many channels to explore to make your dream come true. But knowing which is right for you can be tricky.
Here are five ways to finance the growth of your small business…
1. Traditional bank loans
The bank is probably the first place that most entrepreneurs turn when seeking business funds. Banks are widely trusted because they offer a range of secure, long-term financing options with clear terms and conditions.
However, before a bank will lend to you, you must demonstrate that your business is likely to be successful and will be able to pay back the loan. You will need to fill out complex application forms and show a solid understanding of your figures and forecasts.
The application process can take a long time to complete – and there’s no guarantee that you’ll be approved at the end. Interest rates can also be high, especially for small businesses.
The main advantage of a bank loan over equity funding (see below) is that you get to retain ownership of your business. The down side is that the lender could liquidate the business if you fail to comply with repayment terms.
2. Consider crowdfunding
Crowdfunding is a newer but highly popular form of business financing. This method is recommended especially for businesses offering innovative, unique products or services.
If you choose this method, you will need to dedicate significant time to engaging with potential investors and raising awareness of your funding campaign – as competition is high.
The up side is that the money that you raise will be all yours. You will not be forced to give away equity or repay the money.
3. Look for angel investors
If you are willing to give up some equity, consider angel investment. Angels are experienced investors who help small businesses with both funding and guidance, in return for a stake in the business.
Because investing in small business is high-risk, angel investors may require up to 25% equity – so you will lose some control over your business.
On the positive side, as the angel wants to see the business succeed, you won’t be pressured with tough loan repayments that could cripple your cash flow. You’ll also benefit from their business knowledge and experience.
Finally, if things go badly, you’ll have no obligation to repay the money they’ve put in.
4. Seek finance from friends and family
If you’re unwilling to give outside investors control over your business, you could try asking friends and family.
The advantage of this method over a bank loan is that you may be able to get the finance more quickly, with greater flexibility over terms.
When using this method, you need to be very careful to avoid future conflicts. Set out a clear repayment plan with dates, and ensure that anyone investing in your business fully understands the potential risks and rewards.
5. Focus on quality clients
Finally, a great way to finance your business is to focus on high-margin, quality clients who are able to make their payments on time. This will help to ensure that your business has great cash flow, allowing you to invest in growth projects.
Did you know Start and Grow Enterprise offer the chance to apply for a £1,000 grant to help your small business grow? You’ll be able to apply after you’ve attended one of our Grow Your Business or Five Steps to Enterprise courses. Contact us to find out more.
Sponsored post. Copyright © 2018 Dave Beard, Lending Expert