Funding a business at any stage is often a confusing and difficult issue but is absolutely key to success.
I asked Graham Niven from Tandem FS, a Business funding Specialist to give me his take on how to get business funding and the places where you can start.
How to get Business Funding
You may be a new business, you may be an established business – the point is at some time you are likely to need funding to take you to that next level – so what steps should you take? There are really 4 questions you will always need to ask when you are looking for funding:
1. How much do I need?
2. What will I spend it on?
3. How much profit/ cash will I generate?
4. When will I make that profit/cash?
(The distinction between profit /cash is important – businesses fail because they run out of cash- not because they don’t make profit)
Without the answers to these questions it is almost impossible to raise funding.
What else do I need to know?
A combination of a well-thought out Business Plan combined with a detailed , flexible and realistic Profit and Loss Forecast, (and more importantly Cash Flow forecast), will give the answers to those questions .
You will need to assess your own attitude, and that of any other business partners, to the various funding types, particularly between debt and equity. Some will not want to give away a share of their business, yet many others will not want to burden their business with debt.
Thereafter you’ll need advice to decide on the pros and cons of the various funding sources, who best to approach and what order with which to approach them in.
What types of finance is available?
In essence there are only three forms of finance:
1. Debt – though there are many forms, in essence you ”borrow” money and have to pay it back with interest over a specific time period
2. Equity - again many types but essentially you sell a share of your business to an investor who expects at some time to earn back multiples of the amount they have put in
3. Grants – where typically you don’t repay funding but instead have to produce something which the granter wants – e.g. Jobs/ Research and Development/ Social Impact etc.
The level of interest on debt / equity required will be determined by many things including the level of risk, how long the business has been going, the experience of the owners, the sector which the business is in etc.
But essentially if you put the right proposal in front of the right funder(s), it will get funded
A good starting point to finance options available
The following is a list of some of the types of funding available with some short summaries next to them:
Bank Loans- Generally there is no unsecured lending and so any loans to the business will need to be secured by either Personal Guarantees, against Personal Assets, against Business assets or via the Enterprise Finance Guarantee Scheme
In Greater Manchester there are a number of regional funds such as:
Manchester Business Loan, Greater Manchester Loan Fund, Greater Manchester Investment Fund and Greater Manchester Export Finance Loan
Asset Backed Lending – for New Equipment or Refinance existing equipment
Land & Buildings – not been the most popular area but now the right deals are getting funded
Invoice Finance - Various types of Invoice finance such as Factoring, Confidential Invoice Discounting, One-off invoice discounting, Invoice crowdfunding, Lending against a debtor book
Trade Finance - Generally focussed on finished goods – and matched by a back to back order
Crowdfunding - Many equity sites that will either want a share of the business or take a “reward” for their contribution
Many Debt sites – that will normally need trading history before pitching it to their investors
Pension Fund - Either borrowing from your pension fund or selling your IP to your pension fund for cash and then leasing the IP back
Foreign Investment – Government scheme encourages £200k+ investments of debt or equity in return for allowing employment / visa to stay for fixed periods
Various Regional Funds – Lancashire / Merseyside/ Cheshire
Various sector funds especially for Digital and Creative Businesses – some grants / some interest free loans
North Business Angel Network - There is no pitching fee – No success fee
Commercial Angel Networks typical pitching fees £1k / +5% success fee
1. Start Up Loan – 18+ personal loans <£25k
2. Entrepreneurial Spark- this is an accelerator – free rent and mentoring support