What external funding options are there for your business
What external funding options are there for your business & which one is the right one for you?
You’ve had a successful business now for a few years but feel the urge to scale now. That’s a wonderful place to be in, but can be quite daunting especially when considering the financial investment side of things. Fortunately, there are many different external funding options that you can leverage in order to grow your business or simply level up.
External funding can typically be broken down into two separate categories: debt and equity. Depending on your business goal, one may make more sense for you and your business than the other. Debt allows for you to keep full ownership of your business, while with equity you’re trading a stake in your company/business for money.
Debt
Taking on debt means you’re borrowing money from a lender, typically a bank or financial institution, and have a recurring payment plan to adhere to as well as interest payments to make. This is a great option if you want to retain full control and ownership of your business. Debt funding can often be arranged quickly meaning you can move forward with your plans quickly.
Here are some different types of external funding options that involve a bank and /or debt:
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- Secured and unsecured business loans: Similar to a secured credit card, a secured loan requires you to start with offering part of your assets as a safeguard for banks. Unsecured loans don’t require this.
- Business credit cards: Business credit cards don’t offer a lot of flexibility or longevity when it comes to using external funds for scaling your business. This is only helpful if you require additional smaller funds to purchase extra software, for example.
- Business/Commercial loans and mortgages: This is only helpful to you if you’re looking to refinance your current commercial mortgage loan, or if you’re looking to move into a bigger space.
- Small Business Lenders
- Small Business Administration (SBA) Loans: Many have taken advantage of SBA loans during the pandemic, and sometimes it can still be advantageous to do so now. However, keep in mind that when taking out one of these loans, you must provide a guarantee that you’ll be able to pay it back.
- The British Business Bank: Typically charges 6% but does not credit score you, it validates each project purely on it as a business proposition. This is a great solution if you or your business have issues with your credit rating. It’s one of the few ways to raise funding via on a self certification basis. You might be interested in: Business Asset Disposal Relief – Formerly Entrepreneurs Relief.
Equity
Equity is a great option if you don’t mind essentially sharing your business with others. This isn’t the right choice for you if you take pride in being the sole decision-maker and owner of your business. The team at FD Capital are very experienced when it comes to raising private equity funds from PE houses or working with an existing PE House or VC funder.
Some different options that include offering equity in your business in exchange for funds are:
- Asking friends & family: This is NOT your ideal choice. When this goes wrong, this impacts your personal relationships negatively long-term. The rule “never mix business and pleasure” is a sound one.
- Angel Investors: These are typically individuals who have accumulated a lot of wealth in their life and may have an interest in your business. Typically, something to consider, they do want a pretty large share of your company in exchange though.
- Venture capitalists: In order to even be considered as a viable business venture for a venture capitalist, you must have a well-performing business. Venture capitalists rarely invest in struggling businesses. You might be interested in: What to Prepare Before Meeting Venture Capitalists.
Other sources
- Crowd funding, here people donate to support your project or business, good ideas attract support and a surprising amount of funds can be raised from well wishers. It’s not for everyone but it does work, particularly for start-ups and for really innovative ideas.
- Grants, in the UK there are a wide range of grant options available, these take time to apply for but often they are 100% funded or 50:50 match funded, both local and central Government offer these.
Final Thoughts
With more and more businesses seeking external funding options, having a well-connected Finance Director can make all the difference. For more help and information on how or who to hire as your next Finance Director, reach out to us at FD Capital – we’ll find the right fit for you!
Call us today for a no obligation initial discussion
CALL 020 3287 9501
Adrian Lawrence FCA with over 25 years of experience as a finance leader and a Chartered Accountant, BSc graduate from Queen Mary College, University of London.
I help my clients achieve their growth and success goals by delivering value and results in areas such as Financial Modelling, Finance Raising, M&A, Due Diligence, cash flow management, and reporting. I am passionate about supporting SMEs and entrepreneurs with reliable and professional Chief Financial Officer or Finance Director services.
