Welcome to a new series of the Simply Business podcast. Over the course of the coming episodes we will be looking at one of the key issues facing businesses of every size: finding finance.
In today’s difficult economic climate, small firms are struggling harder than ever to find the cash they need.
Credit is the lifeblood on which thousands of businesses across the country rely. Without the right credit facilities, even viable, profitable businesses can find themselves unable to continue.
Finding finance is therefore a vital priority – but it’s also a significant challenge. The papers are full of stories about businesses’ continued inability to persuade the banks to extend credit – so, aside from dipping into personal savings, what are your options when looking for funding?
Despite the horror stories, the banks remain the first port of call for many business owners. There is good reason for this. For all their sins, the banks still have a lending capacity that far outstrips most other potential funding sources. If you are looking for cash, it is important that you give a bank loan due consideration. Don’t be put off applying on the basis that you presume you will be turned down. Where possible, try to speak to a human about your application. You’ll often stand a better chance of success if you have the opportunity to explain your idea and your position, rather than putting yourself entirely at the mercy of computerised underwriting processes.
But of course, banks are not the only potential source of finance. Many business owners are beginning to look further afield in order to fulfil their funding needs, and there is no reason why you shouldn’t investigate some of these alternatives too.
Some alternative finance methods have been around for some years. Of these, invoice finance is particularly popular. Invoice finance allows you to free up the cash in your unpaid invoices. You pass your invoices on to a third party, known as a factor, which pays you up to 90 per cent of their face value. Then, depending on your arrangement with the factor, either you or they will arrange collection of the outstanding amount from the client. Invoice finance is a common method by which businesses might choose to smooth out their cashflow.
You might also choose to investigate some of the newer forms of alternative finance. Peer-to-peer or crowdsourced lending has proven to be an exciting new area that could enable small businesses to secure funding without having to bother with the banks.
Peer-to-peer lending offers businesses the opportunity to connect with individuals who want to invest. Small sums from these individuals are packaged up into larger bundles, and then lent to businesses through a marketplace system. Lenders get the peace of mind that their money has been spread around several businesses and is therefore exposed to a lower degree of risk, while businesses also enjoy a number of advantages, particularly when compared with a bank loan. Primarily, peer-to-peer loans are often cheaper, and the terms tend to be more flexible. You often also benefit from having a creditor who is sympathetic to the realities of life as a small business owner. Finally, you don’t have to deal with the bank – which, for many people, is a significant upside.
There is a range of finance options available to new and growing businesses. In the coming episodes of this new podcast series we will look at the intricacies of some of those options, and survey the current situation for business finance in the UK.