Sources of Funding for Businesses
Peter Watters - Director - McPhersons Chartered Accountants & Tax Advisors
In order to invest in product development you need access to funds. This is where you need to put a case forward to obtain funding. You might consider one or more of the options here.
Loans
There are a variety of loans available, the most common being bank loans. Applications for bank loans can be a lengthy process and interest rates can be high.
If you can’t get a bank loan and your business has been established for more than 12 months you may be suitable for a business growth loan. Interest rates are typically 14-17% and amounts are anything from £3,000 to £50,000.
If you are a start-up, you may qualify for a start-up loan where interest is lower at around 6% with loans up to 25k. You can find out more about these two from a support group such as Let’s Do Business.
Funding Circle Loans are a Government-owned British Business Bank that has pledged to lend £40 million through the platform, which connects investors directly to small businesses in search of funding. Loans are from £5,000 to £1million. Terms up to 5 years, decision in 2 days, access within a week. Rates from 5.49%, 1-7% origination fee of loan principal. No early repayment fee.
Unsecured loans are available for most business purposes. However, they require personal guarantees from someone owning more than 20% equity and secured loans are generally secured against property. Think carefully about what’s at stake before committing to either of these or in fact any loan.
Peer to Peer Lending
Perhaps more suitable for funding product development is what is known as Peer to Peer Lending or Crowdfunding. A business proposition is put together and listed on an online auction platform. Individual lenders bid to lend them a small part of their requirements. Kickstarter is a popular choice for Crowdfunding creative projects. Projects are backed in return for a ‘gift’ rather than shares/equity. Kickstarter collects a 5% fee if a project is fully funded. Payment processing fees are around 3-5%. 12 million people have backed a Kickstarter project.
Return on Investment
Before you consider the finance route you need to think about the return on your investment. What will your new machine or product add to your business? Hopefully it will increase sales, productivity or efficiency etc. But can you calculate how much? This is a key consideration before entering into a finance agreement. Clearly you think this is an important development or you wouldn’t be looking at finance, but consider the ‘what ifs’; what if sales don’t improve as much as you expect, what if the savings aren’t as great as you hoped? Can you still afford to service the finance options available? These are often questions you will be asked as part of the finance process so be prepared with forecasts and cashflow analysis to give you the best chance of having your application approved.
McPhersons can offer guidance on any of the above – even for the most challenging of cases there is usually something available so ask us today on [email protected] or call 01424 730000 and we will put you in touch with one of our financial advisers.
Peter Watters - Director - McPhersons Chartered Accountants & Tax Advisors
Peter has many years experience working with clients of all sizes, from sole traders through to international groups. His portfolio comprises clients from many sectors including leisure and tourism, manufacturing, the motor industry as well as a number of local charities.
He has particular experience auditing owner managed businesses and well as charities and not for profit organisations.
Peter also has strong IT knowledge and assists Mark in developing and implementing the firms IT strategy as well as advising clients on their systems.
Peter is an active networker and has been the treasurer of Bexhill Chamber of Commerce and Tourism for a number of years.
You can read Peter's advice on Good Financial Management here
Contact Peter: 01424 422038 | 01424 730000 | [email protected]
