Most businesses require access to suitable finance – and many have an ongoing need for additional funding in order to grow and expand by tapping into new markets, acquiring the assets which may be needed to do just that, or simply to access the working capital required for the daily management of cashflow issues.
Finding business finance is, therefore, one of the principal concerns of very many professional practices and enterprises – so, what are some of the sources of such funding?
Fixed rate, unsecured loans
Probably the most readily available funding for any business in search of such a resource is an unsecured loan.
Borrowing in this way may be simple and straight forward, and for those professional practices with an established reputation – and a credit rating to match – it may be a simple question of deciding how much you need to borrow, over the repayment period that suits your business needs.
An unsecured loan is typically repayable over a relatively short period – which has the further advantage of there being less time in which interest payments may mount up. Given that such loans are also typically granted at a fixed rate of interest, they may be easily managed within the constraints of the business’ cashflow requirements.
Because the loans are unsecured, no assets – whether those owned by the business or the personal assets of its partners or directors – are put at risk in the event of any default in repayment of the loan.
If an especially large injection of capital is required by the business, repayments need to be spread over a longer period, or if its credit status is less than perfect, it may be necessary to offer assets – such as the business premises, equipment or personal assets – as security.
A secured loan clearly involves a greater commitment on the part of the borrower and the longer repayment term typically involves the payment of an appreciable amount of interest over the term of the loan.
Business finance may also be raised by way of shared equity – an offer to share an interest in the business and participate in its profits, in return for an investment of funds.
This is the method typically sought by so-called angel investors – the like of whom are featured in the popular TV series the Dragon’s Den, where established and successful businessmen and women make a judgment on the likely success of any given business concept in which they are invited to invest.
The UK Business Angels Association (UKBAA) has a membership of some 160 such investors, who collectively contribute an estimated £1.5 billion each year to selected British businesses.
Still further angel investors may be found through the Angel Investment Network, which also monitors and reports on emerging trends within those industries and sectors of the economy which are currently attracting such investment.
Also known as business angels, these are typically wealthy individuals of proven business acumen and well-placed therefore to judge the potential for financial success of any new or expanding business in which to invest, in return for an agreed equity share in the enterprise. Many enterprises in search of business funding, therefore, may turn to angel investors for the opportunity to expand the business or to seize opportunities presented by emerging new markets.
When investment is obtained through shared equity, the investor not only takes a financial interest in the fortunes of the chosen business, but may also claim the right to influence decision-making and the general direction taken by the business. This effective loss of autonomy by the original owners of the business might be considered one of the disadvantages or drawbacks of angel investment.
Loan-based and investment-based crowdfunding
As many banks have withdrawn from their traditional role of providing ready funding for local businesses, so new sources of finance have been developed – most notably the twin concepts of loan-based and investment-based crowdfunding.
These initiatives are led by web-based platforms which seek to match groups of individual lenders or investors with those enterprises looking to find business finance.
The rationale is based on the fact that businesses may be able to borrow more cheaply through such arrangements, whilst individual lenders and investors also achieve a higher rate of return – and the crowdfunding platform also takes a commission on the deals.
These forms of crowdfunding are now regulated by the Financial Conduct Authority (FCA).
Securing the appropriate business finance
With a relatively wide range of funding options available, it is important that your business chooses the appropriate source of finance to suit its particular needs and requirements.