Financing options for your business
Your bank probably won’t lend you any more money for your business unless you’re willing to put up your house as collateral, which defeats the purpose of having a limited partnership, as the business’s liability is limited. With the banking crisis being well documented and covered up in every possible way, this has left small business owners with little choice in terms of their ability to obtain financing from banks. Having previously worked in the banking world, I know there is little to no appetite (particularly in the UK) for lending to small businesses unless they really don’t need it. So we have to look for alternative financing methods, that is what we will discuss here.
So, first we will consider what the options are. Some people may feel completely comfortable that they will be able to qualify for their business and therefore will be happy to offer some of the capital residences in exchange for a loan or overdraft. Some people will not be comfortable with this and will need to consider other options.
First consider the fact that you may not need financing. What if you could delay paying some of your suppliers or alternatively get paid sooner from some of your customers? This can make all the difference from a cash flow perspective, which in turn can mean you no longer need additional funds. However, for some things this will not be practical and therefore we will have to consider financing options.
The financing options are:
– Try another bank. Just because your main bank has decided not to lend money to your business doesn’t mean another bank will come back with the same answer. All lenders will have both different criteria, as well as certain capital allocations for certain sectors. So, for example, if Lloyds has too much exposure to the healthcare sector, its underwriting criteria may become increasingly stringent, while HSBC may be looking to expand its exposure to this sector. Therefore, in my experience, it is worth trying alternatives. It is extremely important that you have a well researched and documented business plan, something on the back of a cigarette pack will not cut it, do the background work and make the right impression from the start as this will greatly improve your chances.
– Consider angel or private equity investors. This type of investment will require you to give up a share of your business; However, if you can secure the right level of financing for the right equity participation, you can increase the critical mass of your business and greatly improve your prospects. This isn’t for everyone, however if you have development cost or any significant upfront cost requirements, this may work. Before you give away a large part of your business, consider how you will feel in the years to come when you don’t make a lot of money, but have to give a part away.
– Try friends and family, you may not have considered everyone who may be interested in taking a small equity position in your company.
– Try asset financing. If you are looking to purchase a specific asset, it may be easier to finance directly on the asset, as the lender will have security against this and therefore may not have to take over your residential property. Also, this usually means that the financing will be fixed for an agreed term, but it can also be fixed at an agreed interest rate, which means your expenses will be fixed.
– There may also be a number of grants available to you, including local government grants and also other funding methods that you may not have considered. Talk to your local Business Link representative and they may be able to advise you on some financing methods you may not have considered.