Finance - and how to get it
A major complaint from our SME clients is that they are under-financed.
Whether it’s cash flow, overdraft limits, debtors or creditors,
these are all integral to the profitability (and potentially the
survival) of your business.
There are lots of ways an enterprise can raise finance. The main
options are reviewed below. Some will be better for you than others.
You need to choose the most appropriate method depending on your
particular company's circumstances, style of operation, products
and services and market potential. This is where an ibd
advisor can help to guide you through the complexities, save you
time and money and help you avoid expensive mistakes.
1. Arrange an Overdraft with your Bank.
The most popular way of raising finance, this is not always the
best for your business. All Banks have strict rules about granting
overdrafts. Your local branch Business Manager will want to see
evidence of the following:
a) A comprehensive business plan.
b) Your ability to service the overdraft
and how you can repay it.
c) How the money will be used.
d) For what purpose the overdraft facility
needs to be arranged.
e) What security you have to offer the
Bank against the loan.
f) What period of time the overdraft will
be used for.
g) What financial control you have over
your company.
h) Management accounts.
There may be additional conditions and restrictions, depending
on the particular Bank you are talking to.
If you decide to go this route, start with the Business Plan. Get
help from an expert who knows what the Bank will be looking for
from your plan and can tailor it accordingly. If the Business Plan
has been prepared by an expert this tends to give the Bank more
confidence that the plan is achievable and credible.
For a no obligation and free meeting with an expert in preparing
Business Plans, contact ibd.
2. Personal Loan
This option is generally not recommended. However, we appreciate
there may be circumstances in which it may be the only option open
to a business owner. If this is your situation, the criteria above
for an overdraft facility will still apply, but we would certainly
advise that before you apply for a loan you should speak to one
of our experts.
3. Factoring Invoices.
Many companies now factor their invoices in order to improve their
monthly cash flow. Usually there is a fixed monthly fee for factoring.
Once you have paid the fee, you send your invoices to the factoring
company and up to 80% of the invoice value will be sent to you by
return. The factoring company will charge a percentage over bank
base rate on all monies that they send you. This can vary between
3% and 6%.
Factoring can be an expensive way of raising finance and we recommend
you explore other routes first. Either way, please contact
us to get a specialist recommendation to suit your particular circumstances.
4. Grants
Grants are much misunderstood. Many business owners get so bogged
down in the complexity of grants that they just give up - and we
don't blame them. Here are some of the basics - in plain English!
European Commission, UK and local grants are available, usually
only for specific projects or activities, and only up to a certain
percentage of the total project cost - your company has to contribute
the balance. The amount of grant funding can be as much as 75% but
more often will be around 50%.
Before any grant body will advance any money, they will need to
see a Business Plan. There are comprehensive guidelines and criteria
you will have to meet. These differ for each type of grant, so we
can't tell you much more without knowing the type of project you
have in mind, but our grants specialists can advise you at the general
level what is available in your area or for your industry sector.
If you meet the criteria and would therefore qualify for a grant,
you may have to wait up to six months before the grant is paid to
you. A significant point here is that you must not commence the
project until the grant authority has approved it, because you are
likely to be disqualified if you do.
Generally, grants are not available for financing companies or
debtors, purchasing materials, or for salaries of staff, directors
or owners. And if the grant body feels that the company is in difficulty
they are likely to reject the application.
Don’t let these caveats deter you completely from applying,
but don't waste your time on applications that have minimal chance
of success. If you have a specific project or grant scheme in mind,
contact ibd and let
our grants specialists firstly determine if you are eligible and
secondly advise you how to prepare the most effective application.
5. Soft Loans.
Soft loans are available through the EC, UK Government and through
local council initiatives. However, these loans are usually granted
to companies in assisted areas - areas of high unemployment, areas
that have lost an integral industry (e.g. Coal Mining, Ship Building)
for example. If you are in one of these areas or think you might
be, contact ibd.
6. Venture Capital.
Venture capital is available to some companies that need large
amounts of money to develop, market or sell a specific product or
service. In some cases venture capitalists will lend money to a
company for a management buy-out. Most companies who seek venture
capital have exhausted all other routes of raising finance.
Venture capitalists will require a sizeable proportion of the shareholding
in your company and many wish to have their representative as a
main board director. After a period of between 3 and 7 years, you
would usually be invited to purchase the shares back at the pertaining
market value. Interest has to be paid on any venture capital funds
lent. This can be punitive - in some cases is as much as 7% above
base rate.
Before you consider venture capital, we recommend that you contact
an ibd expert who can guide you through the process
and search the market for the most economical and appropriate route
for your company.
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