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Accessing the Right Fuding

Successful access to finance requires the right identification of funding according to business needs, as there are different requirements, terms, and conditions for different types of financing. The type of funding that suits your business depends on individual circumstances and requirements.

Bank Loans

Bank loans are a common type of financing that businesses in the UK can use to obtain funds to support their operations. In essence, a bank loan is a sum of money that a business borrows from a bank, with the understanding that the business will pay back the loan over time, with interest.

There are a variety of different types of bank loans that businesses can apply for, including term loans, revolving lines of credit, and equipment loans. Each type of loan has its own terms, interest rates, and repayment schedules, so it's important for businesses to carefully evaluate their options and choose the loan that best fits their needs.

To apply for a bank loan in the UK, businesses typically need to follow a few key steps:

  1. Determine the loan amount and purpose: before applying for a loan, businesses should have a clear understanding of how much money they need and what the funds will be used for. This information will help them choose the right type of loan and make a compelling case to lenders.
  2. Prepare financial documents: banks typically require a variety of financial documents to evaluate a loan application, including income statements, balance sheets, cash flow statements, and tax returns. Businesses should be prepared to provide these documents, as well as any other relevant financial information that may be requested.
  3. Choose a lender: businesses can apply for loans from a variety of different lenders, including traditional banks, online lenders, and credit unions. It's important to shop around and compare offers from different lenders to find the best terms and interest rates.
  4. Complete the application: once a lender has been chosen, businesses can complete the loan application process. This typically involves submitting the required financial documents, filling out an application form, and providing any additional information that may be requested.
  5. Wait for a decision: after the application has been submitted, the lender will review the information and decide about whether to approve the loan. This process can take anywhere from a few days to several weeks, depending on the lender and the complexity of the application.
  6. Receive the funds: if the loan is approved, the lender will typically disburse the funds to the business in a lump sum. The business will then be responsible for repaying the loan according to the agreed-upon terms and schedule.

Overall, bank loans can be a useful source of financing for businesses in the UK, but it's important to carefully evaluate the terms and options available and to be prepared to provide the required financial information and documentation.


Invoice Financing

Invoice financing is a financial arrangement where UK businesses can obtain immediate funds by leveraging their unpaid customer invoices. It is a form of working capital finance that allows companies to access a portion of the value of their outstanding invoices before the customers have actually paid. There are two main types of invoice financing: invoice factoring and invoice discounting:

Invoice Factoring:

  • In this arrangement, a business sells its outstanding invoices to a third-party finance provider, known as a factor
  • The factor typically advances a percentage of the invoice value, usually around 80- 90%, upfront to the business
  • The factor takes over the responsibility of collecting payment from the customers and manages the sales ledger
  • Once the customer pays the invoice, the factor releases the remaining portion of the invoice value, minus a small fee or discount (known as the factor's service charge).

Invoice Discounting:

  • With invoice discounting, a business retains control over its sales ledger and maintains its relationship with customers
  • The business borrows money against its unpaid invoices from a finance provider, usually a bank or specialised lender
  • The lender typically advances a percentage of the invoice value, often up to 80-85%
  • The business is responsible for collecting payment from the customers and managing the sales ledger
  • When the customer pays the invoice, the business repays the borrowed amount along with the lender's fees and charges.

To qualify for invoice financing in the UK, businesses generally need to meet certain criteria:

  • They should have a minimum annual turnover (often around £50,000 to £100,000)
  • Their customers should be other businesses (B2B) rather than consumers (B2C)
  • The invoices should be due within a specified period, typically 30 to 90 days.
  • The business should have a reliable credit control process and creditworthy customers.

To go about obtaining invoice financing in the UK, businesses can follow these steps:

  1. Research and identify reputable invoice finance providers or lenders that offer suitable services for their specific needs
  2. Contact the chosen finance providers and discuss their requirements, terms, and fees
  3. Complete an application process, which may involve submitting financial information, business documents, and details of outstanding invoices
  4. The finance provider will assess the application, including the creditworthiness of the business and its customers
  5. If approved, the business and finance provider will enter into a financing agreement, outlining the terms and conditions, funding limits, fees, and repayment terms
  6. Once the agreement is in place, the business can start submitting eligible invoices for financing, typically through an online platform provided by the finance provider
  7. Upon invoice verification, the finance provider disburses the agreed percentage of the invoice value to the business
  8. The business then continues to pursue payment from its customers as usual
  9. When the customer pays the invoice, the business repays the finance provider the advanced amount plus fees or discounts
  10.  The finance provider releases the remaining portion of the invoice value, minus their charges, to the business.

It's important for businesses to carefully review the terms, fees, and reputation of invoice finance providers to ensure they choose a reliable and suitable partner for their financing needs. See here the most reputable ones. Consulting with financial advisors or seeking professional guidance can also be beneficial during the process, the LCCI offer the possibility to speak to one of our member experts.

Crowdfunding

Crowdfunding is a method of raising funds for a project or venture by obtaining small amounts of money from a large number of individuals, typically through an online platform. It is a popular alternative to traditional methods of financing, such as bank loans or venture capital, and has gained significant traction in recent years.

In the UK, businesses can engage in crowdfunding by following these steps:

  • Determine the crowdfunding model: there are different types of crowdfunding models available, including donation-based, reward-based, equity-based, and debtbased crowdfunding. Each model has its own characteristics and requirements. Companies need to choose the model that aligns with their funding needs and goals.
  • Choose a crowdfunding platform: there are numerous crowdfunding platforms available in the UK, some of which we have listed here (link to funding resources). Businesses should research and select a platform that caters to their specific crowdfunding model and target audience.
  • Prepare a compelling pitch: a successful crowdfunding campaign requires a wellcrafted pitch that effectively communicates the project or venture, its unique value proposition, and the intended use of funds. Engaging visuals, videos, and clear descriptions tend to capture the interest of potential backers.
  • Set a funding goal: as a business, you need to determine the amount of funding you aim to raise through the crowdfunding campaign. It is crucial to set a realistic and achievable goal that covers the project's expenses while demonstrating credibility to potential backers.
  • Define rewards or equity offers: if the chosen model is reward-based or equity-based crowdfunding, the next step would be to consider what incentives or rewards the business can offer to backers in exchange for their support. Rewards can range from exclusive merchandise to early access to products, while equity-based crowdfunding involves offering shares or equity in the company.
  • Launch and promote the campaign: once the campaign is set up on the chosen crowdfunding platform, it is essential to actively promote it through various channels. Businesses should leverage social media, email marketing, press releases, and direct outreach to potential backers, stakeholders, and relevant communities to raise awareness about the campaign.
  • Engage with backers and fulfil promises: as the campaign progresses, businesses must engage with their backers, answer their questions, and provide updates on the project's progress. At this stage, it is crucial to build trust and maintain open communication with supporters. If the campaign is successful, businesses should fulfil any promises made, such as delivering rewards or equity shares, in a timely manner.

It's important to note that crowdfunding campaigns can be time-consuming and require effort and marketing resources to achieve success. Therefore, a crowdfunding strategy should be carefully planned and executed, considering factors such as campaign duration, funding target, and marketing activities to maximise their chances of reaching their goals. Additionally, businesses should be aware of the regulatory requirements associated with crowdfunding in the UK. The Financial Conduct Authority (FCA) regulates certain aspects of crowdfunding and sets guidelines to protect investors and maintain market integrity. It is advisable to consult legal and financial professionals to ensure compliance with relevant regulations. Overall, crowdfunding can be a viable option for businesses to raise funds and gain support for their projects or ventures. With careful planning, effective promotion, and strong engagement with backers, crowdfunding campaigns can provide the necessary financial boost while also building a loyal community around the company's mission.

Venture Capital Funding 

Venture capital funding is a type of financing provided to early-stage or high-growth companies with significant growth potential but limited access to traditional forms of financing. Venture capital firms invest in these companies in exchange for an ownership stake or equity in the business.

Here's an overview of how businesses can go about obtaining venture capital funding:

  • Preparation: before seeking venture capital funding, companies need to ensure they have a compelling business idea or product, a well-defined target market, and a strong business plan. They should also have a clear understanding of their financial projections, growth strategy, and the amount of funding required.
  • Research and identifying investors: companies should research and identify venture capital firms that align with their industry, stage of development, and investment focus. There are various online platforms, industry events, and networking opportunities that can help connect companies with potential investors.
  • Pitching and presenting: once companies have identified potential investors, they need to prepare a concise and compelling pitch deck that highlights their business proposition, market opportunity, competitive advantage, and financial projections. The pitch deck should effectively communicate the company's vision, potential for growth, and the value it offers to investors.
  • Building relationships: building relationships with venture capitalists is crucial. Companies can attend industry conferences, networking events, and pitch competitions to meet potential investors. Utilising personal and professional networks can also help establish connections with venture capital firms.
  • Due diligence: venture capital firms conduct thorough due diligence on potential investment opportunities. They assess the company's market potential, management team, technology, intellectual property, and financials. Companies should be prepared to provide relevant documents and answer detailed questions during this process.
  • Term sheet and negotiation: If a venture capital firm is interested in investing, they will present a term sheet outlining the key terms and conditions of the investment. This includes the amount of funding, equity stake, valuation, investor rights, and governance structure. Businesses should carefully review and negotiate the terms to ensure they align with their long-term goals and interests.
  • Investment and post-investment support: once both parties agree on the terms, legal documentation is prepared, and the investment is finalised. Venture capital firms not only provide funding but often offer strategic guidance, industry expertise, and access to valuable networks to support the company's growth.

It's important to note that securing venture capital funding can be a highly competitive and selective process. Companies should be prepared for multiple rounds of funding, potential rejections, and the possibility of dilution of ownership. Working with experienced advisors or seeking guidance from organisations such as the British Private Equity and Venture Capital Association (BVCA) can be beneficial in navigating the venture capital landscape in the UK.

Government Support

The UK government website provides information and resources for businesses seeking financial support, such as loans, grants, and tax relief. It also offers guidance on managing finances, accessing financial advice, and finding local support, aimed at helping businesses navigate the financial impact of COVID-19 and grow sustainably. 

Accessing Business Finances for Start-Ups

Investors often want to see a proof of concept or past performance, and without them it can be difficult to secure finances to get your business rolling. However, there are options for start-ups to access financing without any track record.

Small Business finance

Determine the funding required according to your business stage

Development

  • First stages of development
  • Do I have a business plan?
  • Am I ready to market?
  • Has legal been set up?
  • Accounting?

Start-up 

  • Founder is completing an initial validation of a business concept.
  • Financial resources will be minimal.
  • Mostly self-funding or loans from friends and family members.

Growth

  • Raising money to generate growth and expand reach.
  • Loans
  • Venture capital funding

Maturity/closing

  • IPO to raise money in the public markets and achieve liquidity for investors.
  • Exit transactions through mergers or acquisitions.