Is your business caught in a Catch 22 situation? You need to grow to make more money, but you need more money to grow. You’re not alone. Many small businesses struggle to find the cash to get to the next level. If you haven’t got the past profits to reinvest in your business, here are ten alternative business finance options to consider.
1. Personal investment
If you’ve funded your business so far, you might be happy to keep self-financing. It is easier than applying for finance and you don’t have to worry about having debtors or investors. There’s no interest pay or admin to do. However, unless you’ve got a nice little nest egg to call on, you’ll have access to less money than if you took out another form of finance. Plus, you don’t want to leave yourself exposed to financial hardship as a result of funding your business.
2. Overdraft / credit card
Whilst it’s not recommended for funding large purchases or ongoing financing for your business, if you need a small short-term boost to your business finances, you could consider taking out an overdraft or a credit card. For example, if you need to purchase a piece of equipment to start offering a new service.
3. Business loans
Many high-street banks offer business loans to help companies invest and grow. However, since the financial crash in the noughties, they can be more risk-averse and often favour limited companies over sole traders. You’ll need to show any lender that your business is ready for investment and you’ll be able to afford the repayments, and you’ll need two years of filed accounts to apply.
4. Growth loans
If you’re looking for a loan but not getting far with the big banks, good news! Lots of challenger banks and alternative lending schemes have emerged to fill the gap in business finance. Providers like Transmit Growth Loans. We offer growth loans of up to £60,000 from our own dedicated fund – and you can apply after just 12 months of trading.
5. Grants and government support
Some non-repayable business grants do still exist, but they are rarer than they were fifteen years ago. They are usually only available for businesses that meet certain criteria such as: meeting an urgent demand, solving a problem, creating employment, or improving social mobility. Applying for grants can be highly competitive and you need to be prepared to make a strong case for your business. If you’ve been in business for less than two years, you may eligible for a Government-backed Start Up Loan from our sister business, Transmit Startups, with a fixed 6% interest rate.
6. Angel investors
An angel investor is a private individual who invests their own money in your business. They usually invest at a fairly early stage of business development and take a supportive role in your business, offering mentoring and expertise. There are agencies that can make introductions between aspiring businesses and angel investors, so get Googling.
7. Venture capitalists
The big brother of the angel investor, a venture capitalist invests money on behalf of a managed fund. They typically have more money than angel investors and work with more established businesses. They take a very proactive role in businesses, often sitting on the board. They can deliver a very valuable cash injection but be prepared to relinquish some of your control to them.
Crowdfunding has brought real change to the world of startup finance, as well as the lives of business owners who’ve benefited from it. Crowdfunding is when people who need money post about their idea or issue online and ask investors to make a contribution towards it. This usually takes place via a specific crowdfunding platform, which helps the people build and promote their offering, whilst taking a small cut of the money raised. Success rates are relatively mixed, with attention-grabbing product offers performing best.
9. Peer-to-peer lending
Peer-to-peer lending websites match up people who want to borrow money, with people who want to invest. By cutting out the middleman, P2P websites can often offer much lower interest rates to borrowers, while lenders gamble on getting a higher return than they would with a savings account. If you like the sound of P2P lending, take a look at Zopa and Funding Circle.
Factoring is sometimes frowned upon but it can raise quick cash. With factoring, you sell your unpaid invoices to a third party. They pay you less than the invoice is worth, so that they make a profit when they collect the cash. It can free up cash faster than waiting for the standard 30 to 60-day payment window for invoices. But it comes at a higher cost than conventional lending.
Wondering whether you’re ready to grow your business? Read our article on KPIs that indicate growth potential.
If you’re ready to take your business to the next level, check out our finance options for growing businesses.