5 Alternative Ways to Fund Your Business
With the world’s economic fortunes slowly crawling back to some semblance of normality, the rise of unusual methods of funding for companies has been nothing short of meteoric – and the numbers are quick to back this up.
According to Credit Today, the alternative lending market will be worth a staggering £1.6bn this year, with a veritable smorgasbord of unconventional ways of giving businesses a financial shot in the arm imprinting themselves on our collective consciences.
Away from the traditional avenues of dressing in your best three-piece suit and trying to convince the bank money manager that your business isn’t about to vanish off some imaginary economic cliff so he better give you a loan or an overdraft, a raft of other options are opening up to SMEs.
But what are they and how can your business get involved? Read on to find out …
Asset finance allows your business to borrow money against your fixed and moveable assets, such as vehicles, plant, machinery and stock. Typically, the asset is funded via a sale and leaseback arrangement or a hire purchase agreement. This method of funding is beneficial to businesses as it allows them to spread the cost of weighty capital expenditure as opposed to tying up capital.
Government Funding Schemes
Since July 2012, the UK government’s Funding for Lending Scheme has allowed building societies and banks to borrow cash from the Bank of England at reduced market rates for up to four years. As a result, it allows financial institutions to lend money to businesses by slashing interest rates and improving access to credit.
With over £800m pouring into UK businesses from angel investors, it’s little wonder that firms are beginning to pursue this investment avenue. Typically, angel investors will use their own disposable finance and business knowhow to invest in the growth of an SME in the hope that their shares in the company provide a substantial return.
One of the most intriguing alternative finance methods, crowdfunding aims to raise money for a business by asking large numbers of individuals for a small amount of money, rather than asking a small group of folk for larger sums. Aided and abetted by the internet, crowdfunding is becoming increasingly popular among cash strapped firms.
To raise capital quickly, invoice discounting allows your business to sell its unpaid invoices in return for cash. Normally, the firm buying the invoices will offer around 80 per cent of the unpaid amount and, when your customers begin to pay off their outstanding balance, the amount available to be advanced will change so that the maximum drawdown stands steady at 80 per cent of the sales ledger.