How to raise money for your business
September 1, 2015
Figures released by the Bank of England in June show that bank lending to small and medium sized businesses rose by more than £600m in the first three months of 2015.
Many companies, though, still find it hard to get their bank to say yes, and for others banks might not be the best source of finance anyway. So if you are struggling, to where can you turn? Luisa Grey takes time out from her duties as Director at Eazipay Ltd, one of the UK’s largest Direct Debit processing companies, - and being a “been there got the tee shirt” sort of woman - to run you through some of the options.
OK, before we get into the alternatives, have you actually tried talking to your bank? I know they might come across as being not terribly approachable, but you might just find that underneath that gruff exterior lurks someone who just can't wait to lend you money. I do understand that this idea might be as appealing as seeking relationship advice from One Direction’s Harry Styles, but they are human too, well most of them, and they know your history better than anyone else.
I would always make the bank my first port of call. They may say no, they probably will, but if they say yes and you can agree terms then it's an easy kill and saves you a lot of time and trouble.
If the bank has said no, then it's time to roll up your sleeves and get searching …
Actually, before we do that, let's nip back to the bank for a second. Not with thoughts of any unfavourable activities, but to see if you can increase your overdraft facility. The suits might not give you a loan but a flexible overdraft might be what you require without the need for a formal loan arrangement.
Turned down again, huh? Right, it's time to get creative.
How long do you need the loan for? If it's just for a couple of years, the amount isn't huge and you're absolutely certain you can pay it off within that time frame, how about borrowing it on a credit card? There are some amazing deals around at the moment. Some of them last for as long as 36 months and are, like a wet weekend in Basingstoke, entirely interest free.
If you need serious amounts of money, i.e. something with five zeroes or more to the left of the decimal point, then you need to be looking elsewhere.
Angel investors might be a good place to begin. Thanks to its enormous number of start-up companies, Cambridge has more angels per head of population than heaven, probably, and their pockets are more stuffed with cash than a bookie's after the favourite has fallen in the National.
These people are rich for a couple of reasons, however. Firstly, they are astute entrepreneurs and secondly they don't just dish out the cash to any old chum who comes knocking. Do your research, make sure your idea is both properly brilliant and properly costed and have an awesome business plan. Then go here - http://cambridgeangels.com/. This experience is nothing like Dragons Den and you may even learn something.
Crowd funding is a little like angel investors, only not quite so rigorous and not quite so picky. It can be a highly effective source of fund raising, however. If you've got an idea that really catches fire over social media you'd be amazed at the amount of money it can bring in. And because the donations tend to be quite small, no one really worries too much if things don't quite work out.
Peer to Peer lending is another possible source of income, and one that's growing all the time. It's come about because savers are getting such lousy returns on their cash that they wanted somewhere which would give them a bit more than their current 0.00001 per cent. Before tax.
As a would be borrower, you submit your requirements to a site such as Zopa or Funding Circle, and, if they think you're a good risk, then they might lend you the money. And the rates are better than a bank.
The other nice thing about Peer to Peer funding is that the lender gets a better return for their cash, so by borrowing the money you're doing them a good deed as well. In fact what you're doing is practically charity work. You're pretty much a saint.
Don't forget the government. They offer start up loans of up to £25,000. There are also grants available too. Asset based finance is another option. As the name suggests, you borrow against assets you own. Be careful, as if it goes wrong you could find yourself without an essential piece of kit.
The family. This is a tricky one. On the one hand they know you better than anyone. On the other hand, they know you better than anyone.
Families with spare cash, low interest rates and undemanding repayment terms can be a godsend. Equally, mixing your personal and business life can be fraught with difficulty. You'll never get a bank ringing up to say 'Hi Luisa, you know that £20K I lent you? I need it back sharpish to pay for our Carol's wedding.” No matter how close you think you are to your relatives, make sure you get a proper agreement in place.
And finally … do you even need a loan? Savings are always a good option and there's nothing wrong with working from the kitchen table for a few years and growing organically.
Luisa Grey is a director of Eazipay Ltd, the UK’s largest and fastest growing Direct Debit processing company. Eazipay provides regular Direct Debit collection and processing services to thousands of SMEs and corporate organisations in a wide range of market sectors throughout the UK, Europe and beyond. For more information visit www.eazipay.co.uk