At Rushtons, Chartered Accountants we understand that the path to growth for small businesses is often obstructed by financial constraints. Whether it's investing in new equipment, expanding operations, or hiring more staff, accessing the right funding is crucial.
Based on recent research conducted by Shawbrook Bank, it's evident that half of small business owners have had to dip into their personal savings to fund their businesses. Many found that traditional financing options did not meet their needs, leading them to rely on personal savings and credit cards for necessary capital.
Key Finance Options for Small Businesses
Here are some viable finance options available to small businesses:
- Traditional Bank Loans
Traditional bank loans are a common form of financing that provide businesses with a lump sum to be repaid over a predetermined period with interest. While they offer stability and structured repayment plans, securing a bank loan can be challenging due to stringent eligibility criteria and lengthy approval processes.
- Government Schemes
The government has introduced various schemes to facilitate access to finance. One such initiative is the Growth Guarantee Scheme, launching on 1 July 2024. This scheme provides lenders with a 70% government-backed guarantee, reducing the risk associated with lending to small businesses and making finance easier to obtain.
- Alternative Lenders
With the rise of fintech, alternative lending platforms such as marketplace lending and peer-to-peer (P2P) lending have emerged as viable alternatives to traditional banks. These platforms operate online, connecting borrowers directly with loan investors.
- Angel Investors and Venture Capitalists
For businesses with high growth potential, seeking investment from angel investors or venture capitalists can provide the necessary capital injection. In exchange for equity ownership, these investors offer funding, strategic guidance, and valuable industry connections.
- Crowdfunding
Crowdfunding platforms allow businesses to raise capital by pooling small contributions from a large number of individuals or investors. These platforms enable businesses to showcase their ideas and garner support from a broad audience.
- Grants and Subsidies
Various government grants and subsidies are available to small businesses across different sectors. These can range from grants for research and development projects to subsidies for hiring apprentices or investing in energy-efficient technologies. While competitive, securing a grant can provide businesses with non-repayable funds to fuel growth.
- Asset-Based Financing
Asset-based financing allows businesses to leverage their assets, such as inventory, equipment, or property, to secure funding. Options like asset-based lending and sale-and-leaseback arrangements enable businesses to unlock the value of their assets without relinquishing ownership.
- Revolving Credit Facilities
A revolving credit facility provides businesses with access to a pre-approved line of credit that can be drawn upon as needed. Unlike a traditional loan, revolving credit offers flexibility and allows businesses to manage cash flow fluctuations effectively.
- Personal Savings and Loans from Friends/Family
Personal savings and loans from friends or family can be practical options in the early stages of business growth. While this option may lack the formality of traditional financing, it can provide a quick source of capital without the need for extensive paperwork or collateral.
Conclusion
Obtaining finance as a small business is not always straightforward. However, by carefully assessing your funding needs and being open-minded about the available options, you can find the right financing solution to fuel your growth ambitions.
At Rushtons we have extensive experience in helping businesses secure the finance they need for growth. If you have any questions or need assistance, please do not hesitate to contact us. We are here to support you every step of the way.