Sources of Funding

Sources of Finance

How to get money into any business is a problem as old as the hills, so do not feel that your situation is unusual. There are four main ways of achieving this:

1. Do not overlook the obvious!

There are things you can do with what you have got that will bring money in to the business.

Is your marketing up to scratch? Re-examine how you bring customers into your business. Run a test before you commit too much money to it. There are a hundred different ways of generating new business, so do not think that you are applying them all at the moment.

Are you collecting in your debts quickly? Even a small improvement in your debt collection can be a source of funds for your business.

Are you extracting maximum benefit from your suppliers? Could you extend credit with them?

Could you reduce stock levels? Could deliveries be closer to just in time?

Are you sitting on under utilised assets? Do you have a freehold or machinery that you could sell and leaseback?

So look at the obvious things before you start looking elsewhere.

2. Banks and other financial institutions

When you are thinking of approaching banks and financial institutions remember:

Have a decent plan to show them what you are trying to do

They want your business. They have sales targets just like you. If you can put up a decent plan they will fight to get your business.

Don't leave it too late to approach these institutions. There are various different sources of funds from banks

Overdrafts: Never forget that this is a major source of revenue for a bank, and they want your business. Make sure your bank manager knows whats going on and they will be a lot more co-operative.

Lease finance: This enables you to match the costs of buying the asset with the income you generate. However, do read the terms carefully and shop around. Focus at what happens at the end of the lease as there are many options here.

Factoring: Asset based debts can easily be assigned to a third party. This means they put you in finds immediately and collect the debt for you.

Invoice finance: This is the same thing as factoring, except the customer does not need to know. This can be very flexible and do whatever you need.

Loans: Again, presented in the right way, this can be an excellent source of finance, particularly as interest rates are so low at the moment. The small firms loan guarantee scheme may also be helpful in some situations.

3. The Government

Believe it or not, the government wants to help you grow. There are over 1,500 different types of grants available, and it is sensible to seek expert advice in teasing out what may be available. Main types are:

People based: These tend to be support with training such as the modern apprenticeship scheme for 18-25 year olds.

Knowledge based: Various grants are available for research and development.

Location based: The further you are from London the more likely grants are available. Again, this requires specialist help.

4. External investors

Do not assume that just because you have a good idea others will catch on quickly. Dealing with external investors is all in the presentation. You need something snappy to catch their interest and then well presented detail to hold their interest. Typically investors can break into three categories

Business Angels: These are people who have made money who would like to use that money to back others. They will typically invest from a few thousand pounds up to about a million. No hard and fast rules and they can be difficult to find, let alone close a deal with.

Venture Capital Funds: These are interested in investments of at least 500,000, and often a lot more.

Other Companies: Another company may well be interested in investing in your company perhaps with a view to outright purchase in a few years time.

All of these options will want to have a share in your company, and with that comes a loss of control.

Be prepared to discuss this early on in any conversation.

and you must plan

To improve your chances of success in gaining additional sources of finance you must have something in writing. Often the very act of writing something down will help clarify a course of action. It will also help to explain your thoughts to others in a rapid and coherent way.