The question that many entrepreneurs ask themselves at least once is “how can I fund my small business?” Whilst many would think that coming up with an innovative idea is the hardest part, the most difficult part about starting and continuing to run a successful business is having access to the right funds.
Sadly, for entrepreneurs, only four out of ten businesses in the UK are able to stay afloat after five years of trading. As staggering as this statistic may be, it requires business owners to investigate into the reasons that lead to a business’s failure, so that they can prevent their business from encountering a similar fate.
One of the biggest reasons why SME’s fail to succeed is their inability to address the common issue of how to fund their small business.
If you are a business professional struggling to fund your business, Nucleus Commercial Finance can shed some light on how to overcome this challenge – and may even be able to offer a solution, too.
Here are some effective methods of funding your small business:
A loan is one of the most sought-after ways to borrow among among businesses. However, as a small business or young business, without a track record, you may face difficulty in proving to banks that you can repay the loan in the stipulated time with interest.
As banks have tightened policies and begun turning down more small businesses or those in certain sectors, alternative commercial finance companies have emerged as a viable option for thousands of SMEs in the UK. Companies that provide alternative finance are known to have a more flexible and relaxed criteria of granting loans, which also increases the possibility of acquiring finance.
Friends and Family
Considered as a natural preference of most start ups, it is a method of financing that doesn’t take into consideration the credit history of business owners. In most cases it can be availed without the heavy interest rates which are often levied on loans secured through other channels.
However, the unreliability of acquiring funds and the unpredictability involved in repayment forces business owners to explore other more reliable and secure financing options.
Crowdfunding has gained popularity in recent times among businesses looking for investment. There are crowdfunding websites which require you to sign up, proclaim your business objectives and set a target funding goal. The amount of donations you receive depends on how well you have promoted your campaign.
However, there is no assurance that you may succeed in raising the required funds through this method. The possibility further decreases if your campaign doesn’t gain much popularity.
Business Credit Card
Despite being a high risk source of acquiring capital, credit cards can be used to provide for the financial needs of a business , although long-term reliance is not advised. The risks involved in mis-managing this type of finance include debt accumulation and a potential blow to your credit score, should you fail to repay the credit card bill.
Invoice Financing / Factoring
Businesses whose customers have long payment terms or those who prefer to be in control of their cash flow and when they are paid, often suit invoice financing or invoice factoring. A business seeking this type of finance is required to prove its ability to repay by using their sales ledger or debtor book (the log of their unpaid invoices) as security. A percentage of the whole ledger, usually between 80 and 100% is advanced to the client.
Invoice finance involves the commercial finance company lending you the amount that would be obtained from the invoices that are awaiting payment. Then once you have the invoices, the lender will take a small percentage. For SME’s with cash flow pressures or growth ambitions it is one of the most suitable commercial finance products out there.
Use of Assets
Many small businesses will not have a large amount of assets to leverage on their balance sheet. However, if there are assets to show, it is possible to secure a loan against those assets. These assets may include any property, machinery or equipment owned by the business. This method of funding is known as Asset Based Lending.
Even if your business does not have any asset to offer as collateral for a loan, you can still apply for a loan against any property that you own in a personal capacity.
With all the options on offer, finding finance that is the right fit for your business is simpler than ever. Do you research and find a partner who will provide a solution to fit your business.