Finance and Commercial Banking

To determine what path you will take to finding the right funding for you, you will have to ask yourself a series of questions.

• What is the nature of your business? If it is an internet or technology-based company you might need more money and an investor who is prepared to take a higher risk.

• How long do you have to raise the money? (The time frame is usually crucial.)

•  What risks are you prepared to take in order to get what you need?

• Are you prepared to use your own money, invest relatives and friends’ capital or seek alternative funding from a larger pool of investors such as business angels or even venture capitalists?

Whatever you do, don’t panic. Let Worldwide Associates (working with ICFBA Partners) guide you through the minefield of choices open to you in your quest for growth.

Your Own Money

This is one of the most common ways of funding a business and if you have the money readily available can be beneficial. There is no waiting around and virtually no red tape involved. However, if something goes wrong and you have nothing to fall back on, you could face a severe knock-on effect. Your businesses’ fate is in your own hands.

The Four F’s

More commonly known as founder, family, friends and foolhardies. If your own money is not quite enough you may choose to seek help and next stage funding from friends and family. Those involved may ask for something in exchange such as a stake in the company but this is up to your own discretion. Written guarantees and/or legal documentation should be drawn up. Whatever you do, consider ways to recover from eventualities that may happen (but don’t waste time and effort formulating ‘just in case’ plans, make sure that you have a recovery strategy in place. Unfortunately most people don’t enter a business partnership thinking about what can go wrong, but things do go wrong and being able to respond quickly is going to make the difference between success and failure.

Bank Loan/Overdraft

When people think about raising money their first port of call is generally the bank. In fact, approximately between 60% and 70% of small businesses call on their local bank to borrow a sum of money to see them to the next stage of growth or to get the company up and running. However, banks will always look for security and if you don’t have it you will have to go elsewhere. For a smaller amount of money this will often take the shape of a secured loan backed up by the borrowers own home. Acceptance will almost always depend on the type of business and the amount of security the bank can receive in return for funding.

If you need a bit more than £100k, don’t worry some banks can help you. But usually only if they have a venture capital arm. For example, HSBC Ventures UK deals as an in-house arm and invests in amounts of between £250,000 and £2 million in established companies. HSBC Private Equity, a sister company, considers larger amounts. However, for smaller amounts of between £25,000 and £500,000 HSBC also has an associated fund called QTP that invests in small, high-growth companies.

Grants

If you are worried, for whatever reason, about approaching your bank manager and are looking to secure a smaller amount of money, a grant or a combination of grants could be more suited to your business. This is one of the cheapest forms of finance but beware of the sometimes non-financial conditions that maybe attached to the grant. These could include the number and type of people employed and occasional restrictions on items on which the money can be spent.

Grants range from local initiatives run by local development agencies to Business Link funding as well as private funds across the country. And if you thought grants were just about a few hundred pounds then think again. In the near future some of these initiatives will have their own venture capital funds, supported by the Department of Trade and Industry, which will fund businesses seeking between £50,000 and £250,000. Thousands of other ‘hard cash’ schemes exist and are provided by banks, the EU and other large as well as smaller organisations. If in doubt consult your local Accredited Partner

Small firm’s loan guarantee scheme

Backed by the Government and the SBS (Small Business Service) this guarantees loans from £5,000 to £250,000 (if your business has been trading for more than two years) from banks and other financial institutions. The scheme is generally designed for small firms that have viable business proposals but who have failed to get a conventional loan because they don’t have enough security. To be eligible you must be a UK company with an annual turnover of no more than £1.5m (£3m if you are a manufacturer).

Contact your local Accredited Partner for more details.

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