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How to get the next injection of finance for your business

Does your business need funding?  Perhaps you are looking to launch a new business, launch a fashion line or expand internationally? Whatever the reason, getting additional finance to make this happen can be a confusing process. Businesses do not know where to turn or what is available.

Bobby Lane, small business advisor to the fashion industry and partner at the accountancy firm SSH LLP, looks at different ways your business can get the next injection of finance:

1. Friends and family

They say don’t mix business and pleasure, but if you draw up firm agreements regarding any loans or investments, then wealthy friends and /or family can be a viable and often the simplest option for funding – particularly if you are starting-up a new business.

2. Overdraft

A first reaction by many business owners is to ‘get an over-draft or extend theexisting one’. This may be the right choice in some cases however if your business is growing rapidly an overdraft may be nothing more than a temporary fix. In a short space of time it may need to be increased but given the time it takes to increase a limit and the security required this may not be quick enough to support the growth. Also be aware that the days of banks saying yes to overdrafts are dwindling and lenders are pushing clients towards asset-based lending and trade finance.

3. Asset-based lending

Invoice Discounting or Factoring facilities have lower security requirements and greater flexibility making this type of finance the best option for funding a growing business. Banks and finance providers are much more comfortable offering these types of facilities. However, they are not appropriate for every business if you do not offer credit to customers it will not help.

4. Trade finance

If  your business needs to address working capital issues and paying suppliers, then a further option is trade finance. Facilities such as letters of credit work well when purchasing from Asia and there are now some excellent stock financing products on the market which will all assist companies with their growth.

5. Mortgage

Raising money against your own property can be one of the cheapest routes to debt finance. However, you will need to ensure that should the business fail you will still be able to make your mortgage payments and that you would be able to financially recover from the loss.   

6. Start-up Loan scheme

The scheme was created by the Government to help people who are trying to start or grow their businesses. If you have been trading for less than 12 months you can access up to £10,000. On top of the funding the borrower is also matched with a business mentor free of charge.

7. Bank loan

A traditional bank loan is still an option for a business however you will need to satisfy the credit committee of the bank and have the appropriate security available. If you do not have security available then you may be able to use the Enterprise Finance Guarantee scheme.

8. Enterprise Finance Guarantee scheme

The Enterprise Finance Guarantee (EFG) scheme involves the Government guaranteeing 75 per cent of the loan with the bank taking the other 25 per cent of the risk. However, you will have to give a personal guarantee for the amount. Your business will need to be UK based, have a turnover of less than £4 million, looking for finance of between £1,000 and £1 million and will seek to repay the load within three months and 10 years.

9. Angel investor

You may be able to find a third-party investor with a different skill-set who could add value and the right connections to help you run the business. New alternative routes to angel investment include crowd-funding platforms with investors pledging small amounts of money usually in return for an equity stake.

10. SEIS/EIS

The Seed Enterprise Investment Scheme (SEIS) is a fantastic incentive for investors with up to £100,000 to invest (the company can raise £150,000). Investors receive 50 per cent income tax relief on their investment. If the business is sold after three years there would be no capital gains tax on the sale of the shares if the business is successful. There would be additional loss relief if the business were to fail in the future. For larger investments there is the Enterprise Investment Scheme (EIS) which works in a similar way but the initial income tax relief is 30 per cent.

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