Tag: business finance

All you need to know about getting business finance in the UK

Start-ups rely on financing from external sources to take their business off the ground. The funding companies include but are not limited to:

  • Lenders
  • Banks
  • Venture capitalists
  • Angel investors
  • The government

Well-established businesses also rely on financing from external sources to take up big projects. An immediate injection of cash is a must to hit the ground running. In this day and age, getting business finance should not be a complicated thing to deal with because the lending industry has evolved to flexibility over time. There are several types of business financing, and each one has specific benefits and drawbacks. 

Things you should know about getting business finance

Getting business finance can be quite hard. There are various options available to you, but each one is subject to a few drawbacks. You should carefully weigh up all options while getting business finance. 

Business lending – secured and unsecured

Business loans can be used for all types of expenses of your business including:

  • Equipment purchase
  • Buying a bigger space
  • Hiring more staff
  • Buying stocks
  • Acquiring another business
  • Expanding your business
  • Day-to-day operations
  • Consolidating debt
  • Improving cash flows

The amount of money you borrow can be small or large depending on your needs. Your lender will not ask you to put down collateral if you borrow a smaller sum. Start-up loans and business overdrafts are not subject to collateral. 

Start-up loans

Start-up loans will be quite expensive because there is no certainty about your profitability in coming years. Your lender will make a lending decision based on your business plan. Make sure it is relevant, realistic and robust. Your profits will be projected to determine your affordability. 

Pros Cons 
You do not need to submit collateral.Interest rates will be higher. It can be a bit hard to pay back the debt. 
You will get lump sum money to start your business.Start-up loan fees will add burden to your pocket. 
You can build your business credit score by paying it back on time. They follow strict eligibility criteria. It can be difficult to qualify for a loan. 
You do not need to lose equity.Your personal credit rating can also be checked. 

Business overdraft

Overdraft allows you to borrow money as and when you need up to a pre-agreed amount. 

  • It is a type of credit you can apply for through your bank. 
  • You will pay interest on the borrowed sum and overdraft fees. 
  • Short term business loans are the alternative to business overdrafts.

What if you need a large sum of money?

You may need a large amount of money to buy premises or new equipment. Lenders cannot approve your application for a large loan without collateral. There are various types of secured loans such as:

  • Invoice financing
  • Equipment financing
  • Asset financing
Pros Cons 
You may borrow a larger sum.You need a suitable asset to borrow money.
The size of monthly instalments will be smaller due to extended repayment periods.Your will lose the secured asset in case of a default. 
Interest rates will be lower than unsecured business loans provided your business credit report is good.Despite lower interest rates, you will end up paying a lot of money as interest due to longer repayment plans. 

Invoice financing

It can help you fix your temporary cash flow problems. You can borrow up to 90% of the value of your invoices. The rest money will be handed to you after collecting payments due against invoices and deducting the cost of the service. 

  • When the finance provider collects payments from your debtors, it is known as invoice factoring. 
  • When you collect payments yourself, it is called invoice discounting. 

You should consult invoice finance brokers so you can get the maximum value of your invoices funded. 

Asset financing

Asset financing is another secured business loan. You can borrow money against the value of machinery, vehicle or a piece of land. You can continue to use your property or asset, but there is a risk of losing your assets if you fail to repay the debt. 

Business credit cards

With the help of a business credit card, you can make all purchases. You can use them to fix your cash flow problems as well. The limit of your business credit card depends on your business revenues, business credit rating and reputation. Some banks go to great lengths to offer you the most affordable credit card deal when your relationship is good with them. Business credit cards cannot be used to meet the setup cost of a business. You can use it for day-to-day operations.

Pros Cons
It helps maintain your business and personal expenses separately. Your personal credit score can also be affected in case of missed payments. 
It helps establish a business credit score. You will have fewer protections compared to personal credit cards. 
You should make convenient payments. Interest rates will be quite high.

Angel investors

Angel investors are similar to venture capitalists but with one difference – angel investors are wealthy people and invest their own money in your business while venture capitalists invest money belong to others. 

Angel investors can support your business whether it is a start-up or an established one. Their knowledge and networking can help your business grow faster. How much money you can raise from angel investors depends on how much proportion of equity you are willing to sacrifice. 

Pros Cons 
Angel investors are good for early stage investment.You will lose control of your ownership. 
You are not taking out a loan, so there is no risk of making payments. They may ask you for protection warranty in case your business fails to pick up.
You do not need to put down collateral.You cannot make decisions solely. 
There is a greater degree of flexibility. There will be an increased pressure of hitting targets and achieving results. 

Government grants

Government grants have been designed to help start-ups that need an immediate injection of cash. You should first check your eligibility for government grants. You do not need to lose ownership but they come with a very small amount. Most of the grants are aimed at small businesses only.

The bottom line

Getting business finance can be quite tough because a number of factors play a role in it. Regardless of financing option you choose to fund your business, you should carefully examine your credit score and business profitability. Many entrepreneurs find it hard getting business finance, but with careful research you can grab the best option for you. For more such informative articles, visit here.

Crafting a Robust Business Finance Strategy for Sustainable Growth

In the dynamic landscape of business, navigating the financial terrain is crucial for sustained growth and success. A well-thought-out business finance strategy serves as the compass that guides companies through economic uncertainties and market fluctuations.

This blog delves into the essential components of a robust business finance strategy and how organizations can leverage them to drive sustainable growth.

Understanding the Financial Landscape:

Before devising a finance strategy, it’s imperative to have a comprehensive understanding of the financial landscape. This involves analyzing market trends, identifying key competitors, and evaluating economic indicators that may impact the industry. Such insights enable businesses to make informed decisions and develop a financial strategy that aligns with both short-term goals and long-term objectives.

Financial Planning and Budgeting:

One of the foundational elements of a sound business finance strategy is effective financial planning and budgeting. Establishing realistic budgets allows organizations to allocate resources efficiently, preventing unnecessary expenditures and ensuring that funds are directed towards activities that contribute to overall business objectives.

A well-crafted budget should encompass all aspects of the business, including operational expenses, capital investments, and potential contingencies. Regularly reviewing and adjusting the budget as needed enables businesses to stay agile and responsive to changing market conditions.

Risk Management:

In the unpredictable world of business, risk management is paramount. A comprehensive finance strategy should incorporate a robust risk management framework that identifies, assesses, and mitigates potential risks. This involves evaluating both internal and external factors that could impact financial stability, such as market volatility, regulatory changes, or unexpected disruptions in the supply chain.

Diversification of Revenue Streams:

Relying solely on one source of revenue can leave a business vulnerable to economic downturns or industry-specific challenges. A strategic finance approach involves diversifying revenue streams to reduce dependence on a single market or product.

This could entail expanding product lines, entering new markets, or developing innovative services that cater to emerging trends.

Investment and Capital Structure:

Determining the right balance between debt and equity is a critical aspect of business finance strategy. Careful consideration should be given to the capital structure, ensuring that the chosen mix aligns with the organization’s risk tolerance and growth objectives.

While debt can provide leverage, too much reliance on it can lead to financial instability. On the other hand, equity financing offers a way to raise capital without incurring debt, but it involves relinquishing ownership and sharing profits.

Investment decisions should be aligned with the company’s overall strategy, taking into account factors such as the cost of capital, expected returns, and the risk associated with the investment. Strategic investments in technology, talent, and infrastructure can position a business for long-term success.

Cash Flow Management:

Effective cash flow management is the lifeblood of any business. A finance strategy should prioritize maintaining a healthy cash flow to meet short-term obligations and capitalize on growth opportunities. This involves optimizing payment terms with suppliers, managing receivables efficiently, and maintaining a cash reserve for unforeseen circumstances.

Regular monitoring of cash flow statements helps businesses identify patterns, enabling proactive measures to address potential issues before they escalate. Additionally, leveraging technology solutions for cash flow forecasting and analysis can enhance accuracy and agility in decision-making.

Continuous Performance Monitoring and Adaptation:

The business environment is dynamic, and a finance strategy should not be static. Continuous performance monitoring is essential to assess the effectiveness of the strategy and identify areas for improvement. Key performance indicators (KPIs) should be established and regularly reviewed to measure progress toward financial goals.

Adaptability is a cornerstone of a successful finance strategy. Businesses should be prepared to adjust their financial plans in response to changing market conditions, economic shifts, or internal organizational developments. Regularly revisiting and refining the finance strategy ensures that it remains aligned with the overarching business objectives.

Conclusion:

In conclusion, a well-crafted business finance strategy is indispensable for navigating the complexities of the modern business landscape. From effective financial planning and risk management to diversifying revenue streams and optimizing cash flow, each component plays a crucial role in driving sustainable growth.

By embracing adaptability and continuous improvement, businesses can position themselves for success in an ever-evolving marketplace. As organizations tailor their finance strategies to align with their unique needs and objectives, they pave the way for a resilient and prosperous future.

Author Section
Suzzain is a passionate and insightful blogger, known for her captivating writing style and keen eye for detail. With a knack for storytelling, Suzzain takes readers on immersive journeys through her blog. Check out her pieces on information in sites like My Finance In, The Finance Knowledge, Economic Desk, Economic news Times,  The Crypto Journals,  Law of Public, Legal Advice Journals, The Legal Case Studies, Global Crypto Magazine, Economic New Times