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UK Debt Finance, Financing Business Growth

by: Ed Pearson


There are so many questions from SME businesses that are looking for debt finance of some sort or another. Valuable time is wasted by SME stakeholders trying to source the right deal from the right people at the right price for the right reason. It can be a minefield which may not be as desperate as leading to a company downfall but lack of funds not available within a reasonable timeframe can spell the beginning of missed opportunities, months of struggle and eventually an insolvency disaster waiting to happen.

What is the finance for?

Be clear on what you want your finance for. If you are looking at:

 Working capital
 Expansion skills, diversification or perhaps acquisition
 Development of ideas
 For use in the actual product or service
 Proving the market
 Proving the product

Or something else in this vein then go for it.

If you are looking for funds to:

 Cover losses
 Repay your debts
 Paying your salary

Then generally speaking, forget it!

Have you seen Dragons Den on BBC2? What happens when the entrepreneur divulges the fact that the funding they are looking for is to go on wages? Yep, even if youve not seen the show you can probably guess. The entrepreneur walks away empty-handed. If you are just trying to repay debt then perhaps its time to talk to the professionals and get some sound advice.

Types of finance (UK)

Consider all the funding options available. Look around your local area, talk to the chambers of commerce, find out the local investment trusts. Ultimately, make sure you pitch to the right type of funder to suit your borrowing requirement.

As a rough guide, consider:

 Debt finance / Small firms loan guarantee (SMFLG) (5k+)
 Friends and family (Up to 80k)
 Business angels (Typically 50k up to 500k)
 Specialist funds / sometimes wealthy business angels in a niche market (Up to 2M)
 Venture capital firms (1.5M+)

Outside or in conjunction with the above you may also do well to consider asset finance companies (assuming you have assets in your business) and also invoice discounting / factoring (assuming you have a debtor book and robust contracts terms and conditions of business).

Some key issues

The funding companies that you approach will be looking at other issues surrounding your business. To be a little crude, theyll want you to show them the colour of your business underwear. So what will they want to know?

- Financials
- How do the numbers relate to your plan?
- Are the numbers consistent?
- Can you confidently recall the key numbers and understand how they relate to your business?

- The management team
- The right blend of skills to see the goal through?
- Concentrically focussed?
- The right product with the wrong team is generally less attractive than the wrong product with the right team!
- Ability to deliver in spite of setbacks

- Product / Service
- Do you have a unique selling point (USP) that makes you stand out from the competition?
- Have you protected your interests in the product or service?

- The marketplace
- How big is your market?
- Whos your competition? Tip: Never say we dont have competition. You may have a USP but there is always competition even if its an alternative solution to your offering. Make sure you come across as knowledgeable about how you fare against the competition.
- How will you get access to your market?

Really understand these key issues. The funding companies are checking you out as much as the numbers relating to the deal.

Dont ask for too little or too much

If you really understand your business to the level that a funding company would like then you would get the request for money correct the first time you ask. Its embarrassing if you get the figures wrong.

Write out a cashflow forecast for your proposition.

Remember that the greatest gap between revenue and overhead costs may not be month 1 or 2, it may be 8 months down the line.

A typical cycle for raising finance may take 2 to 18 months. If you run out of cash in month 9 and youre 5 months from the next injection of funding then you may not survive the year. The extra costs associated with filling a cashflow gap may also squeeze your margins to the point you operate at a loss.

Too much funding is equally embarrassing. You have to pay the funding company for that extra cash in the business and potentially at a later date request more funding if say you hit upon a needed expansion plan. What will the perception be of a company asking for funding who were wildly out on figures the last time around?

Summary

There are a number of options available in the UK for business funding.

Asking for the right amount of funding, for the right reason with the right lending source will save you time and costs. Make sure you do the work and demonstrate your ability to run and manage your business.

As a footnote, if you still cannot get funding and are faced with insolvency / personal debts and you would like some help and advice then do get professional help as early as possible.

Ed Pearson is a Debt Dr. He can be reached in confidence on 07970 659266 or e-mail on ep@debtDr.co.uk.

http://www.debtDr.co.uk 'Prescribing a life without debt'

This article does not constitute regulated advice. Please remember that any action regarding financial advice should always be taken only after considering the specifics of your own situation.

Ed Pearson is a Debt Dr offering debt help and advice to individuals and small businesses across the UK.

Whilst you may love the stuff he writes, you should only ever take action once you have considered your own set of financial circumstances with a professional. This article does not constitute financial advice.

Please e-mail if you'd like to chat further on any area of your debt finance.

Avail Finance With No Credit Check On Taking Bad Credit History Unsecured Loan

The next part of the list is critical in terms of day to day living, but much more discretionary, i.

Each lender has showcased unsecured loans terms and conditions on websites. Take a look at what seems to be fixed costs such as personal, or household, insurances and compare rates and benefits. Leverage the property to payoff personal bills If you cash flow from switching to a pay option arm goes from 0 to 0 a month, you can use that extra money to pay off your car, credit cards, student loans, whatever. The loan may help in improving credit score of tenants if paid back in time.

Because of collateral, secured home loan is offered at lower interest rate which is always way lower then unsecured loans.
You should compare different loan packages and settle for the offer having comparatively lower interest rate. This is all very miserable stuff really. Real Property, Equipment Leases and Notes are another form of business financing. The sheet is also split into columns for yearly, monthly and weekly expenditure so that it is easier to group all like expenditure together even if you pay for it in different ways. Extended vendor terms for purchase of product may provide short-term operating capital loans. Unsecured used vehicle finance can be availed without any collateral.

But you still need to make sure they are cost effective.
The last section on the budget sheet is for income. Any other thing you can do in this area to consolidate debt and reduce overall interest payments needs to be examined closely. Housing costs such as rent or mortgages can be reduced. You may have a USP but there is always competition even if its an alternative solution to your offering. Do you rely on just one or two suppliers?