A broad church beyond the bank door


By Bibby Financial Services

17 Sep 2015

There are many different ways that a company can fund growth and expansion plans. The trick is to find the right funding mix that suits your specific needs and this process will largely depend on where your business is in its evolution, your product or service portfolio, and the industry sector you operate in.

The mix of funding types you choose is likely to be as unique and individual as your business, but we’ve outlined some popular options below.

Bank loans have traditionally been the first port of call for businesses seeking finance. However, over recent years SME owners have begun to look further afield, including some of the alternative options below. While bank loans are seen as reliable and competitive, they often have low application approval rates. Furthermore, it’s widely recognised that bank loans do not provide the level of flexibility required by many small and medium sized businesses, hence the growing popularity of loan-alternatives.

Invoice financing (including invoice discounting and factoring) provides funding against customer invoices, enabling businesses to access the money they require as soon as an invoice is raised. With factoring, businesses are also given support with credit control and sales ledger management, freeing up owner / manager time to focus on growing the business.

Application approvals for invoice finance are typically higher than bank loans and often, funding can be unlocked within 24 hours helping businesses to stabilise cashflow quickly.

Bad debt protection is offered by some invoice financiers, helping to protect businesses from the insolvency or inability to pay of key customers. One of the main benefits of invoice financing is flexibility, as the level of funding available grows in-line with a business’s order book.

Business overdrafts are a common way for SMEs to finance their businesses. While overdrafts can be seen as a more flexible method of funding than bank loans, funding limits can be reduced at any time making them less suitable for long-term financing.

However, in the short term, overdrafts can provide an injection of cashflow for businesses looking to grow their order book. Most High-Street banks offer overdrafts and there are also alternatives available from independent funders, such as Flexidraft from BFS.

Crowd-funders and peer-to-peer lenders have grown significantly in popularity over recent years and there are now hundreds of platforms across the world connecting investors with businesses looking to raise capital.

Crowdfunding offers a straightforward way of raising capital quickly and easily, particularly for start-ups. While the speed at which businesses can access funding via this means is often promoted, many these platforms are largely unproven and untested.

For this reason, it’s important that you consider the size, financial strength and experience of such funders when conducting research.

Leasing is a form of finance that enables businesses to acquire the equipment they need without having the burden of significant up-front costs. Leasing includes Lease Finance and Hire Purchase, which are often used to manage cashflow more effectively by paying for essential equipment over time.

Personal loans are a popular way for SMEs to kick-start their businesses and our SME Confidence Tracker shows that over 1 in 10 SMEs consistently rely on friends or family for business funding [1].

However, though you may be able to access interest free finance, personal loans seldom provide the flexibility required to grow your business, often stifling growth potential unlocked through more sustainable forms of funding.

Finding funding

The UK is a highly mature market for financing and now is the time for SME decision-makers to put capital to work. Once you look past the often closed door of the bank and start understanding your options, you’ll open up a world of financial possibilities and business growth beyond.

There are a number of online resources available to help you to understand the options available, such as www.alternativebusinessfunding.co.uk and www.gov.uk/business-finance-support-finder.

You can also use our Funding Finder tool to help you decide whether invoice finance is right for your business.

[1] Bibby Financial Services conducts in-depth research amongst around 1,000 UK SMEs with an average turnover of £1.2m in each quarter in order to build up a detailed picture of business sentiment.

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