How Can Entrepreneurs Finance Their Business?

by Susan Paige on November 13, 2019 · 0 comments

Small business finance has been in the news recently, with the government-backed programme Start Up Loans having lent more than £30.5 million to new ventures in the North East since its launch in 2012.

This is similar to other initiatives across the length and breadth of the UK, with the programme having issued a grand total of 3,882 loans and a hefty £4.8 million to applicants during 2018 alone.   

Despite this, the wider economic climate is still making it difficult for business-owners to secure viable funding in 2019. However, there are some options that remain reliable sources of capital for firms, including the following:


  • Secured Business Loans


We start with one of the most traditional and tested funding methods for SMEs, with secured business loans offered by banks, building societies and specialist online lenders.

With this type of loan, you’ll be required to leverage existing business assets as security against the money that your borrow, from commercial property and equipment to inventory and cash holdings.

Whilst secured lending is generally considered to be more painstaking and time-consuming (particularly when dealing with banks), this offers you access to competitive rates of interest as your risk-profile is considerably lower in the eyes of lenders.

In contrast, informal money lenders can charge far higher rates of interest, even in instances where they secure assets against the loan.


  • Peer to Peer (P2P) Lending


Since the great recession more than a decade ago, the financial landscape has evolved to include a vast number of flexible borrowing options for businesses.

Take P2P lending, for example, which is now considered to provide a viable alternative to traditional loans and works by connecting potential borrowers directly with lenders.

The application and approval process involved with P2P loans is exceptionally quick and efficient, whilst lenders in this niche often operate in a relatively simplistic and transparent manner.

You’ll also find that some P2P loans can be cheaper to secure, although you’ll still need to go through the underwriting process and submit to in-depth credit checks.


  • Invoice Financing


If you want to inject some cash flow into your fledgling business and secure funding without encumbering your firm with debt, you may want to consider invoice financing.

This provides a flexible and accessible way for all firms to borrow cash on a short-term basis, as they sell their accounts receivable to third party lenders and repay the cash once their own clients have settled their invoices.

This is an excellent way of generating working capital in your venture, whilst it also overcomes the financial challenges posed by 90, 60 and even 30-day invoice terms.

Not only is this type of lending convenient, but it’s also low-cost and negates the need to lumber the business with long-term debt. This is highly beneficial in the modern age, and it can afford smaller firms and startups a competitive edge in their chosen market.

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