There are many different types of funding available and not all are suited to every company. We will help you choose the most suitable for your company. Support2business have raised funds using ALL of the methods listed below and are able to introduce our experts in each type of funding for your business.
Equity funding is whereby a proportion of the ownership is exchanged for cash into the business (usually by the issue of new shares). This type of funding is HIGH RISK for the funder because they can normally only capitalise on their investment if the company is successful. Equity investment therefore is usually looking for a HIGH RETURN.
Debt funding is essentially a loan. The lender needs LOW RISK because the returns are relatively low. The lender will try to get as much security as they can over assets (eg plant & machinery, debtors, etc.), but in some circumstances it is possible to get a Government Guarantee instead of security. Debt funding includes not just traditional bank loans, but asset financing, invoice factoring, credit card advances, pension fund loans and more.
Grant funding is money paid into the business with no interest or repayment necessary, usually sourced from the government, the EU, trusts or private enterprise. The vast majority of grants are “matched funds”, whereby the grant will cover only a proportion of the funding requirement. Grants often come with strings attached, but once granted, they are usally reliable on delivery.
Corporate and Private Investors (Institutions, Venture Capitalist and Business Angels)
Usually Angels or Venture Capitalists will invest in a promising Company with growth and profit prospects, usually expecting to exit in 3-5 years with their money having grown at least 3 fold in the Interim.
They will usually require a proportion of the shares in the business reflecting their assessment of the risk. At the same time they will bring in funds and connections which will be beneficial to the company and may enable it to achieve its targets sooner than otherwise might be the case.
There are a few ‘junior’ stock markets, such as London’s Alternative Investment Market (AIM) and OFEX, where it is possible to raise Equity Finance for larger projects with costs and regulatory requirements well below the Stock Exchange levels. These bring increased stringency as regards regulation but offer a market for a company’s stock which allows shares to be traded by the public. The first time a company goes “public” is called an “Initial Public Offering” or IPO.
A growing number of businesses and individuals are using “crowdfunding” as a method of funding. This is usually facilitated by a website which reaches out to both investors and investees.
Typically a project is submitted and approved for publication and then anyone at all is invited to subscribe to the project, often accepting very low sums per investee. Once a project is fully subscribed, agreements are entered into and funds released.
This can be very appealing for start-ups or in some cases established companies. In all cases the submission needs to be well prepared and the terms of the funding professionally vetted. Nonetheless, these are some major success stories resulting from this kind of fundraising.
Bank Loans and overdrafts
In 2012 banks are not the easiest of places to seek funding as they try desperately to rebuild their balance sheets after the trauma of the asset melt down in 2007-8 and national government demands for liquidity (see Basel standards). Today they are demanding large arrangement fees, rapid and regular pay back terms, and significant management fees on a monthly basis on top of high interest rates.
Enterprise Finance Guarantee Scheme (EFG)
The EFG is the replacement of the Small Firms Loan Guarantee Scheme (SFLGS) whereby the government offers Banks a guarantee over up to 75% of a loan. Banks will still apply their normal criteria (eg ability to repay, proposed use of funds), but will not then (in theory) demand security against the full loan.
The government have tried to make this more flexible, but in truth, banks are not keen to support the scheme and we have only manged to place a small number of EFG supported loans in the last 12 months.
Commercial Loan and Mortgages
These are available to Companies and owners who either own or rent their property. A company can raise funds by remortgaging an owned building; or it can invest a proportion of its cash in a building it buys, as opposed to renting and it borrows the balance on a Commercial mortgage. There are a number of different types of loan and credit facilities from various finance providers. Needless to say, you should review the terms and rates carefully before committing to anything.
Gaining leverage from your Pension Pot
Working with specialists in this sector the use of a Pension Fund to buy the company property is an option worth exploring, as it can be more cost effective for the company and also ensure that the Pension Fund Income is sustained over many years at an advantageous level. It is however a minefield of regulation and control, so qualified advice is essential.
This is where a company buys your trade debts and pays you up to 90% as soon as they receive a valid copy invoice. The balance, less charges, is paid once the customer pays. As a result of a court case, many of the banks are encouraging clients to use factoring and invoice discounting facilities in preference to more recognised forms of lending. Undeservedly, there has been some stigma attached to factoring and invoice discounting, but it can be useful for rapidly-growing businesses which sell to customers on credit.
The security is the debtor book and usually personal guarantees are low (e.g. £5,000).
A recent innovation in Invoice Factoring are websites whereby you can offer any invoice for auction. Any number of individuals or companies can bid for the invoice. The advantages are that you only auction individual invoices and the highest bidder wins!
Credit Card Advance / Factoring
Similar to invoice factoring, it is possible to raise cash against future credit card sales. Typically you would be able to raise 1 months credit card takings. This kind of funding (not a loan, but an advance) can be very flexible, for example the advance is repaid by the merchant at source and you can choose over what period you want to repay.
More important, once agreed there are no further interest charges, no late payment charges and no security demanded. Support2business have our own direct access to this kind of funding – see our Business Cash Advance page.
Trade Finance (Including International Trade Finance)
Trade Finance can be a very beneficial method of growing a company. The Funder stands in the shoes of the Company and contracts to pay Suppliers for the materials needed to fulfil contracted orders.
The Supplier is guaranteed payment and often will give the Funder better terms than the original client, due to the financial strength of the Funder.
Materials can thus be bought, converted into product and delivered to the Client. The Client pays the Funder and the Company receives the Sales Value less the materials bill paid for by the Funder.
Grants and awards
There are a number of grants and awards from bodies such as the Regional Growth Funds, European Union, the BIS, the Technology Strategy Board, the National Lottery, DEFRA and UK Grant Making Trusts. They are not nearly as elusive as many believe if you know where to look, although the application process can be lengthy and time-consuming. More information is available our here.