External Funding Options for Your Growing Business

Your Guide to Business Financing

Getting external financing to fund your company’s growth will depend on your plans, how willing you are to give away a stake, and, therefore, control in the business, your eligibility, and the short-term or long-term funding you need.

How to finance your business growth

Bank finance

Banks can offer you:

• Unsecured business loans. These will have fixed repayments (including interest) over a set time frame. The amount and the interest rates will depend on the bank and your circumstances.
• Secured business loans. To obtain a business equity loan, you’ll need to offer your company collateral or assets as security (for example, property, inventory, or equipment). The amount you can borrow will depend on the value of the assets.
• Buy-to-let loans and commercial mortgages. These are suitable if you’re looking to buy or remortgage business premises.
• These are more suitable for short-term financial support when your company has a cash shortfall.
• Business credit cards. Again, these are probably best for short-term support.
• Invoice finance. It will mean you can access cash that is otherwise tied up in outstanding invoices. It’s ideal if your company offers long payment terms to customers or if you need to grab growth opportunities.
• Asset finance. This allows you to make small regular payments for an asset rather than a large, one-off payment. It is ideal If you want to preserve your working capital and generate income from an asset as you pay for it.

Angel investors and venture capitalists

If you’re willing to offer a share of your company or equity, you could approach third party investors such as angel investors or venture capitalists (VCs).

You might not have to repay their investment, but the share they will want in return is likely to be high.

Alternative investment markets

You could also consider alternative finance options. These include crowdfunding and peer-to-peer funding.

• Crowdfunding. In return for early access to your products/services, discounts, or an equity stake in your company, you can raise the money you need from a crowd of small investors.
• Peer-to-peer lending. You can borrow from individual small investors. If your application is successful, you’ll probably be able to borrow more than you would through a bank and access the funds quicker.

The criteria for the loan might not be as stringent as a bank, but the costs might be similar.

Is your company eligible for funding?

Banks and investors often use what’s known as the CAMPARI method to decide if your company is eligible for funding. That is:

• C This incorporates everything from your professionalism and brand reputation to your company’s record in repaying loans.
• A This is about you and your team’s knowledge and expertise and how successful you’re likely to be to generate growth from the financing that investors are being asked to provide.
• M This is about how well your business is equipped to meet your growth plans. Investors will want to see your Return on Equity (ROE), growth projections, your competitive advantage, detailed financial reports, performance record, and a comprehensive expenditure report.
• P Investors will want to know how you will use the funds and how they will help to boost the company’s financial situation or generate a profit.

For example,  if you have no liquidity in the business but need it to fulfil an order or if you need a type of machinery to be able to increase your product or service range.

• A This is about showing investors how you came to decide on the level of funding you’re applying for.
• R Investors need to be convinced you can afford any repayments. They’ll look in particular at your cash flow and profit margins.
• I This is all about showing investors you have a fallback position if things go wrong. They’ll need to be convinced you have another source of repayment should you need it.