“It takes money to make money” – we’ve all heard this phrase at some point in our lives and for business owners, these 6 simple words could not be more irritating, especially during times of financial hardship.
Running a successful business is by no means an easy feat. It takes patience, determination and more effort than most even care to realise. But there comes a point where we begin to measure the success of our business and whether that success could grow to become more.
A profitable business is the be all and end all when it comes to the end of the financial year, or at least that is certainly what it feels like when those ghastly financial year-end reports are due.
However, what really matters is exactly how much profit your SME is making and whether there is potential to make so much more – more of which could help you grow, to expand into other markets and perhaps even other continents.
But wait, it doesn’t always have to be so black and white. Just because your company is not turning over enough profit to fund an entire expansion project, that doesn’t mean your dream of achieving major growth this year has to fade into obscurity.
Remember… it takes money to make money, but that money doesn’t always have to be yours.
There are plenty of different ways to get funding to grow your business and with the end of summer in sight, there is no time like the present. In fact, when we surveyed 500 SME owners, 40% said they expected business income to increase over the summer months and just over a fifth believed that summer is the most important season to generate income – with winter actually coming in at second place for capitalising on consumer spending.
So, if you start applying for business funding and exploring your different options now, the expansion of your business could be complete a lot quicker than you currently anticipate, perhaps even in time for next year’s sizzling summer months. Here’s how…
1. Borrow from Loved Ones
This is a popular choice for business owners as it is easy to obtain and provides greater flexibility when compared to other funding sources. Relatives and close friends tend to loan money with customised repayment plans that are far more lenient than standard business loan repayments. In fact, just over a tenth of the SMEs we surveyed told us that they had decided to not go through with their business finance application as they got the money from family or friends instead.
With this type of business funding, there is no requirement to fill out pages and pages of paperwork, plus things like your credit score, interest rates and providing collateral don’t usually come into the question. But there are of course downsides that come along with borrowing from close friends and family. A failure to pay the money back on time can cause conflict and put a huge strain on relations, plus in most instances, the funding is provided without accurately assessing exactly how viable the business is beforehand.
2. Standard Business Loan
A typical commercial loan is usually the first place businesses look when they require external funding. Whilst the mention of taking out a business loan used to be met with a grimace and a stark warning to avoid them like the plague, borrowing has become far less taboo in recent years and with that has come a broader understanding of the industry.
If you decide to explore your funding options, you will come across two terms:
Both types of business loan are popular, but one will likely suit your business and circumstances more than the other. For example, if your SME is a start-up that requires funding to launch – or if as a business owner you find yourself struggling to attain fair rates due to a bad credit rating, then a secured business loan is likely to be the best option.
Using collateral as leverage with a business loan will enable you to secure larger amounts of funding with more generous rates and longer repayment terms. At Nucleus, we provide secured business loans from £25K to £20m to enable businesses to achieve their growth ambitions.
The idea of exposing residential property or assets is off-putting for some, which is why there is also the option of unsecured business loans. Usually these come with higher interest rates, but they are faster to obtain and are best for businesses wanting to borrow small amounts with shorter repayment terms.
For more information on which is best for your individual business, check out our informative blog – Secured or Unsecured: Which Business Loan Is Best?
3. Business Cash Advance
If your business accepts card payments, you might be able to access a popular finance product that differs greatly from your traditional business loan. With a Business Cash Advance, you borrow money based on your future card earnings.
Rather than being tied into fixed monthly repayments, a Business Cash Advance enables SMEs to pay back their loan amount flexibly. You agree a repayment split with your finance lender and for every card transaction your business makes, the lender takes a percentage.
With the Nucleus Business Cash Advance, you can borrow up to 125% of your monthly card volumes, with funding ranging between £3k and £150k. The great thing about this lending product is that businesses do not have to pay large amounts when they are experiencing slower months and your business only pays back what it can afford. Seasonality is a challenge for many businesses, both small and large, so having a business funding facility that takes that into consideration is a huge relief for lots of SMEs.
4. Angel Investment
If you are lucky enough to acquire funding from an angel investor, you are unlikely to ever regret it. This type of funding is usually best suited to businesses that are start-ups or new to the business world.
Angel investors will inject their own money into small businesses with the hope that the additional funding will enable the company to thrive, which in turn means getting their investment back tenfold. In exchange for funding, you give the investor an equity stake in your business.
There are no standard criteria for attracting the interest of an angel investor as they tend to invest in businesses that appeal to them and of which they believe could be highly profitable at some point in the future. They take bigger risks for bigger pay-offs when things go well, but they also bring with them a wealth of knowledge and advice on running a successful business venture.
5. Venture Capitalists
Venture capitalists are essentially at the other end of the spectrum. They tend to invest money in businesses that are already well established and profitable but wanting to expand. They do this to reduce the risk of losing money as venture capitalists tend to invest far larger amounts than angel investors.
Most venture capitalists come from professionally managed firms with strict criteria on who and how much to invest since the funds come from various sources, with the agreement of investing in business ventures that are most likely to provide high rates of return for investors.
Both venture capitalists and angel investors rely on investments in the form of equity financing. If you are unable to secure business loans due to having a bad credit rating or lack of collateral, equity financing could be the right funding option for your growing SME.
Of course, with angel investors and venture capitalists, you will be expected to give away a portion of your business to external powers. For many key decision makers, the idea of selling shares (an equity stake) of their business is a huge point of contention so these options are not for everyone.
6. Invoice Finance
Invoice Finance is another way you can grow your business this summer. If your business is being held back from meeting its growth demands due to a backlog of unpaid invoices, this type of commercial finance could be the perfect fit.
Your business will no longer have to endure lengthy wait times and will instead be able to start implementing expansion plans with the financial backing in place to do so. Your debtor book is one of your strongest assets and you can use it to make growth and day-to-day operations a lot smoother in the coming months.
You can either choose to have a confidential invoice facility (discounting) where you retain control of collections and customers never know of the lender’s involvement – or you can opt for a full-service facility where the finance lender will also take responsibility for the sales ledger management process entirely.
For more information on invoice finance and how it works, check out our blog here.
This type of funding is probably the hardest to attain for any business – and that is because it is traditionally donation-based. There are various crowdfunding websites that SMEs have successfully used to attract funding to their business venture, including both start-ups and companies that are already established.
Businesses that manage to get funds through crowdfunding are the ones that are specific with a clearly defined outcome. Spend some time preparing the perfect pitch so that you can get outsiders interested in your business – communities like to support small businesses, especially those with a purpose.
But with so many SMEs competing for donations, it can be difficult to ever get the funds required to grow your business this way, so exploring your other more realistic options first and foremost is the most recommended route.
If you are experiencing cash flow challenges or want to realise your business growth plans, get in touch with our team of Funding Specialists today on 020 7839 9451 or email [email protected].