There’s been a surge in the number of small businesses operating in the UK as of late, with more and more start-up family businesses operating within Bath and the Somerset region.
Consequently, the competition between local companies is more aggressive than ever. In order to stand out from the crowd, many entrepreneurs are starting to invest in their business to help it grow.
To do this, you and your family must carefully consider the business finance options out there.
Below we’ve listed a range of options to consider with the help of James Taylor, finance broker at business finance experts Lending Expert.
Traditional Business Loans
The most common way of financing a business is by securing a loan. These are typically provided by high-street banks and building societies – all of which have varying interest rates and application requirements.
Advantages: The main advantage of business loans is that you have access to a large sum of money. What’s more, there’s added security as you’re borrowing from a bank instead of a random online lender.
Disadvantages: Most banks have a minimum loan amount, which may be too high for some small businesses. Furthermore, they often only have secured business loans, which means they want an asset of yours to back the loan in case you struggle to repay it.
This loan functions in the same way as any other loan, but the critical aspect is that you borrow money from other people instead of an organisation. There are websites online that allow you to do this, and you could acquire all your cash from one person, or it may be made up from various people.
Advantages: The key advantage of peer-to-peer loans is that you can borrow as little or as much as you want. They also tend to be more accessible as well.
Disadvantages: The downside is that these loans can cost more than a traditional business loan. Plus, you don’t get the protection that comes when you borrow money from banks/building societies.
Merchant Cash Advance
A cash advance is essentially a short-term loan. A merchant cash advance is a short-term loan that’s built around your credit/debit card sales. In essence, you borrow a chunk of money which will be paid back through your sales over a specified period.
Advantages: There are no APR’s with cash advances, you agree on a fee during your application. It’s a convenient and fast way to inject money into your business and pay back later.
Disadvantages: The term for these loans is very short, and you depend on making enough sales to cover the loan and the fee. This potentially puts pressure on companies that aren’t hitting their sales targets.
Asset-Based Business Finance Options
Asset finance is the main type of asset-based finance option, and it’s relatively simple. You can use the money you have tied up in your own assets to secure financing for your business. Alternatively, you can purchase assets for your business by using different finance options like leasing or paying the cost in instalments.
Advantages: If you have lots of money tied up in assets, this is a great way to free it up and utilise it for your company. Likewise, the other option is ideal if you need to buy equipment to grow your company, but can’t afford the costs all in one go.
Disadvantages: It can sometimes cost more to buy an asset through asset financing, and you may not receive all the money tied up in your assets if you try and free it up through this method.
Here, you use money tied up in your invoices to get cash instantly. Sell your invoices to a company, and they give you the cash you need. When your clients eventually pay the invoice, it goes to the company you sold them to.
Advantages: Quick access to cash when invoice payments are taking too long to come through.
Disadvantages: Costs more than just waiting for invoices to be paid and you lose some money as well.
An angel investor is when someone invests money in your business, usually for a share in the company. You get the funds you need, while they have a bit of an influence on your organisation and can earn a share of the profits.
Advantages: You don’t owe money to anyone and can get a big injection of cash for free.
Disadvantages: Some investors can be quite ruthless and make very strict demands that take control away from you.
This is sort of an investment option as you’re basically asking for lots of people to invest in your business. They donate as much as they want, and the aim is to reach a target amount set by you.
Advantages: The cheapest and best way to get cash for your business without ending up compromising anything.
Disadvantages: Very low success rate, will often need to go viral online to receive enough investment to raise the required funds.
Business finance can be used to help grow your business by injecting it with cash. From here, you have the funds to invest in new ideas or hire more employees.
If you need financial assistance, then these are the best options for your company.
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