At McDade Roberts we help hundreds of businesses around Preston, Longridge, Bamber Bridge and Garstang to grow. Sometime the way to growth is to secure business finance. Finding the best method of finance that works for you and your business is crucial to its success. Whether you are looking to start a new business or need capital to expand, there are various options to consider. Here is a quick guide to get you started.
Business Overdrafts
Overdrafts are credit facilities that have a set amount of money, agreed between you and your bank. They can provide a flexible means for covering short-term outgoings and unforeseen business expenses. Overdraft limits need to be agreed in advance and interest is ordinarily charged on any money you receive from an overdraft facility.
Overdrafts should not be used as a long term source of finance, and continued use may lead your bank to question whether you are in financial difficulty. If you find yourself overdrawn for long periods of time, contact us for advice.
Loans
Loans are the conventional source of funding for most businesses. Bank loans are taken out for a fixed term, with interest rates agreed in advance, so they are relatively straightforward. Alternatively, borrowing money from friends or family may be an option. If this is the case, it is important to draw up legally binding arrangements and to make sure every aspect is formally agreed in advance to avoid any potential upset.
For advice on how much money to request or for a financial assessment of your business before you apply, please contact us.
Grants and Government Support
You may be able to make use of a grant or other type of support. Grants are usually provided by local councils, the government and charities, and can be an inexpensive form of financing. Grants and similar subsidies are typically non-repayable, but tend to be highly sought-after, resulting in fierce competition for this type of funding.
To search for available schemes and grants in your sector visit www.gov.uk/business-finance-support-finder.
Investment
This option involves selling part of your stake in the business to an interested investor. Think Dragons Den. The investor could be a wealthy individual, a private equity company or a larger company operating in the same sector. As only limited companies can sell shares, sole traders and partnerships are not able to use investment finance as a source of funding.
If you sell part of your business to an investor, any profit (or loss) the business makes will be shared with the investor. Advantages for this type of finance mean you are not charged interest and there are no monthly repayments. Often, new investors also bring varied skills to the table, which could potentially improve your business. However, this type of finance means relinquishing some control and investors often expect to be consulted before management decisions are made.
Debt Factoring and Invoice Discounting
Factoring involves selling any unpaid invoices to a third party and paying interest and/or a fee on them. The third party will then collect the debt themselves.
Invoice discounting provides a means of borrowing money against any unpaid invoices owed to your company (again, for a fee). As your invoices are paid, the amount you owe the lender decreases. These forms of finance can be a good way of releasing cash tied up in unpaid invoices back into your business.
Asset Finance
Leasing equipment means you can avoid spending a large amount of money in one lump sum. This is often beneficial from a cash flow perspective, although it should be noted that in some cases the monthly leasing instalments can be more expensive than buying the asset outright. Leasing will also give you access to a high standard of equipment, and assets can be upgraded easily when contracts end.
Hire purchase agreements are another option for those who want to acquire business assets without having to pay for the whole item up-front. And don't forget, the cost of qualifying business equipment is usually tax deductible – talk to us for further details.
At McDade Roberts accountants, we can advise on the most suitable type of finance to suit your needs – please contact us for further information.