SME Funding: Which suits your business best?
There are a variety of small business funding options available, but knowing which funding option is best for your fast growing SME can be a bit of a minefield.
To help choose the best funding option for your small to medium sized business, here’s an outline of the six most common kinds:
Commercial Loan – typically commercial loans are used to acquire a permanent asset such as property which will be used in the day to day operation of the business such as a hotel, retail unit, factory, office, pub, warehouse or distribution hub. This loan would be pitched at between 50% and 75% of the property value and repayable over a period between 10 and 20 years.
Overdraft – covers the working capital cycle of a business and is based on professionally prepared cash flow projections broken down on a month-by-month basis.
Invoice Discounting/Factoring – this funding option is primarily linked to rapid business growth where a debtor book is being created. These facilities incorporate credit checking of customers and debtor collection. In essence it allows funds to be drawn quicker than the 60 to 90 day terms that often apply. This funding would not be appropriate for cash/credit purchase business models.
Credit/Charge Card – mechanism to control certain payments and monitor expenses. Credit cards are a useful tool for spreading outgoings throughout the month, but beware of high interest rates and try to pay the balance before interest is applied.
Asset Purchase – when it comes to vehicles, machinery, equipment, phone systems, office furnishings and IT systems, try and match the asset to useful expected life with funding alongside. Do not make the mistake of purchasing these items out of your business cash flow.
Equity Funding – normally associated with expansion, take over/acquisition, and management buy-out. The idea behind this funding is to bring in expertise/funds to help a business grow. In recent years Crowd Funding has presented a wider option here.
Other Funds – in the market at any one time there could be other funds available from the Government and often connected to increasing employee numbers, International Trade or investment in certain parts of the UK.
You can find these options via the Government website, or through your local Business Doctor. Alternatively, I am running a seminar on 21st July regarding Finance and Funding for a Growing Business Find out more
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