smallbusiness.co.uk: Helping your business think big

Business owners are constantly encouraged to strive for growth, take on employees, buy equipment and find new customers.

However, you may need additional funding to sustain that expansion. The problem is deciding what type of finance is the most suitable and which provider can meet your needs.

SmallBusiness.co.uk has teamed up with Ian Hepworth of Funding Solutions to offer the following guide to the issues you might encounter and the types of finance available.

Reasons for seeking finance

If your business is growing rapidly or you’re just starting up, cash flow could be a problem. If you’re selling to other businesses on credit terms, you may find that the cash you are receiving is not enough to meet your outgoings.

Alternatively you may find that you need a cash injection in order to take on and train new employees, buy new machinery, purchase or rent larger premises to accommodate your expanding business.

It is important to note that no type of finance is without risk, so getting some professional advice about the right type of finance for you is important.

Types of finance

Invoice finance – Typically it is suitable for businesses selling to other businesses on credit terms and typically provides up to 90 per cent of invoice value the day after it is raised. This can offer a much-needed cash injection and can allow businesses to grow rapidly without overtrading.

Wage finance – This can provide established businesses with an unsecured facility equal to nice weeks’ wages including PAYE and is often used as an alternative to invoice finance.

Asset Finance – This allows you to purchase assets for the business that can aid expansion. Usually the asset itself is used as security but in some instances small personal guarantees may be requested from lenders. Suitable assets range from office furniture/equipment to industrial machinery.

Commercial mortgages – These allow businesses to purchase new premises that can accommodate a growing venture. Typically some form of deposit is required but this amount can vary dramatically.

Where to source your finance

The market consists of the high street banks along with a wide variety of specialised independent lenders. Each has its own capabilities and preferences so it’s important to find a lender that likes the assets you are looking to fund and one that understands your business. Within the banks and specialised lenders it is also important to ensure you are talking to the right person within the most suitable division.

Hepworth advises that ‘It is important to remember your business is unique and that someone will need to take time to understand the problems you’re facing and, more importantly, your goals. With such a wide array of lenders and even more financial products, it is imperative you find a lender that is suited to your needs.’

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