Neil Bromage has run his own small business and is a freelance business writer working on a range of newspapers including The Times, Sunday Times, Telegraph and Financial Mail on Sunday. This book is based on a wide range of columns and Q&As written and answered by Neil for Business Link over a number of years. He is based near Preston, Lancs.
Raising money is rarely easy. It probably represents a major obstacle for most businesses that are looking to grow. And with the various shifts which have taken place in the lending markets it’s important to have a clear idea of exactly what you are trying to achieve.
It is essential for any business, however large or small, to establish the most appropriate type of finance they need for the project in mind. All too often, businesses apply for finance before exploring other ways of generating cash internally. It is always worth looking at improved credit control, reducing stock levels or renegotiating agreed credit levels with suppliers before going to external lenders.
Before any application is made a new business plan should be prepared. It needs to demonstrate the cashflow of the ongoing and future business, along with its ability to service the requested loan.
Where cashflow shows a short-term requirement for funds the most appropriate type of financing is a bank overdraft or factoring. Factoring has grown considerably over the last few years and now represents a credible alternative to traditional finance. It will provide a business with around 85% of an invoice within, generally, about 24 hours.
Where the business plan shows a longer-term requirement it is worth considering commercial mortgages on any owned property or even asset-backed finance leases.
Long-term development capital is often the most difficult to raise. With venture capitalists generally not being interested in deals below £0.5m there is a gap in the market. It’s a gap increasingly being filled by business angels – high-net-worth individuals willing to invest in private companies in return for a stake in the business. They can often bring other strengths and expertise into the business and there are several networks which exist to bring businesses and angels together.