Do I Need To Raise Finance For Business?

The answer is Yes. At some point in their life cycle all businesses need some sort of finance to:

• Start up a business, eg pay for premises, new equipment and advertising.
• Run the business, eg having cash to pay wages and suppliers.
• Expand the business, eg having funds to pay for a new branch in a different city or country.
• Buy an existing business

How to raise finance for a business

Initially many business owners reinvest their own capital as a way of financing a business but when it comes to looking for external investment, many newer businesses find it difficult. When seeking a bank overdraft or loan, applying government incentives, or attracting new investors / partners, you will need to present a convincing picture of your business’ financial status and future opportunity.

Here we explore the different sources of finance and the best way find finance for a business.

Your own money / friends / family 

Raising business finance from a traditional business loan can be a difficult, lengthy, and intrusive process. This is especially true for startups and businesses looking to recapitalize during a turnaround. That’s why many entrepreneurs choose to use personal money for fund their business.

Personal money is money that you have, receive, or borrow as an individual rather than under your business’s name. Here are six ways to invest personal  money into your business:

• Retirement Accounts
• Personal Loans
• Consumer Credit Cards
• Home Equity Loans / Home Equity Lines of Credit
• Loans from Family and Friends
• Personal Cash Savings

The benefit of a loans from family and friends is that they are more likely to trust you and they will probably demand lower interest than a bank loan. It is advisable to draw up a written agreement that sets out the repayment conditions.  

Bank loans & overdrafts 

As mentioned, raising business finance from a traditional bank loan can be a difficult, lengthy, and intrusive process but if a longer term commitment is involved, a bank loan can be the most suitable form of finance.

Alternatively, overdrafts may often be a good way to finance a temporary shortage. A bank overdraft is a that allows funds to be withdrawn from an account in excess of the balance.  An overdraft comes with various advantages:

A bank overdraft is usually helpful for a business where it has cash flows moving in and out many times during a month.

• It helps to maintain a good payment history as any payment made via cheque does not bounce due to insufficient funds.
• It also aids in ensuring that timely payments are made and no late payments penalties are faced

However, the disadvantage of a bank overdraft is that there will likely be higher interest rates. Also, if one goes above or exceeds the overdraft limit, the charges thereby are much higher.  

Government Assistance 

With the government pledging to help SMEs through the stages of start-up and expansion, there is a range of funding for small businesses to take advantage of. Assistance schemes vary from year to year, from industry to industry and from region to region, with most assistance being concentrated in areas of high unemployment.

Government-backed support and finance for business, including:

• Grants
• Finance and loans
• Business support eg mentoring, consultancy
• Funding for small and medium-sized businesses and start-ups

Asset Finance 

Asset finance is a great way of buying equipment you need to expand your business without using all your cash. Our dedicated team of equipment lending and leasing experts help businesses secure finance when looking to buy equipment. We arrange business finance for all kinds of capital equipment including:

• I.T. equipment & software
• Plant & machinery
• Trucks /Coaches
• Fixtures & fittings
• Office equipment/furniture
• Medical equipment
• Aviation & marine equipment

Asset Refinance 

Asset refinancing has a few different meanings depending on the context. It could refer to:

• Using an asset as security for a loan
• Asset finance combined with (or in addition to) other finance
• Debt consolidation: refinancing business debt

By releasing company assets you could free up cash, reduce your overdraft, generate working capital, finance business expansion or fund a Management Buy-Out or Buy-In.  

Other sources of finance

Today’s financing landscape offers a wealth of alternative finance options.  These funding options include crowdfunding, grants, regional growth fund, equity finance, venture capitalist or business angels. Through your own and your advisor's contacts, you may find new investors to increase the share capital.  

Are you looking to raise business finance?

Haines Watts has extensive knowledge of the market and how funders view different business types means we can often find funding with better terms than you could find yourself. Here are some ways we can help you with your business and asset finance:

• Creating a compelling business plan
• Financial modelling
• Finding and approaching investors
• Getting the best deal
• Project management
• Due diligence
• The legal process

If you are looking to raise finance for your business then get in touch, our chartered accountants in Hull can help you to work out whether it makes financial sense to take on loans or investment so get in touch with one of our accountants to discuss your situation.