The next step

On invoice financing

[Previous article]

On equity financing

[Previous article]

To P2PFA

[Weblink]

Where to find the money?

The stats

The Voice of Small Business Index for Q1 of 2019, published by the Federation of Small Businesses, illustrates that business confidence is low. 85% of businesses surveyed had not applied for any form of credit in the previous three months. However, of the 15% that did, 70% were successful, with more than half securing interest rates of less than 5%. Most business owners naturally turn to their bank for a loan, but the application process can be tortuous and the conditions prohibitive. However, there are alternatives that might suit your circumstances better, offering more flexibility and quicker access to funds.

Peer-to-peer lending (P2P)

P2P uses online platforms to match businesses with lenders. The interest rate can sometimes be higher than a bank loan, but for many the speed of accessing the funds and flexibility is worth it. Loans are usually unsecured, so evidence of your trading history will be needed. As you’ll be sharing confidential business information with lenders you don’t have a relationship with yet, you’ll want to know that your data is in safe hands. The self-regulatory body, P2PFA, vets its members so provides a good starting point (see The next step ).

Asset finance

Asset finance (principally hire purchase and leasing agreements) enables SMEs to make use of an expensive asset, like machinery, vehicles or new technology, without having to pay for it all up front. Although the fees and interest make it more expensive overall, the business gets the benefit of the asset immediately, with the predictability of paying for it in manageable chunks. Tip. Make sure the repayments are affordable; if you default, the asset will be repossessed. If you have a heavy debtor balance, invoice finance ( yr.13, iss.17, pg.4 , see The next step ) is a way of converting invoices into working capital.

More specialised options

If you don’t meet the high-street banks’ criteria, so-called “challenger banks”, i.e. new entrants to the banking sector, can be more flexible.

Enterprise finance guarantee is a government-backed scheme aimed at small businesses with insufficient assets to offer as security. Start-up loans are another government initiative that help new enterprises by providing access to funds and mentoring. Community development financial institutions lend to businesses and social enterprises that cannot obtain credit or operate in disadvantaged communities. Ready for investment. If you’re keen to avoid debt, equity finance could be the solution ( yr.20, iss.15, pg.2 , see The next step ).

Money for nothing?

Grants tend to target specific types of business, e.g. a certain sector, location or owner profile to help under-represented groups flourish, or to encourage new start-ups or cutting-edge research and development. Of course, nothing is truly free - grants often have stringent qualification criteria and performance targets, and competition is fierce - but the effort is worth it for those who succeed in securing funding.

For a link to the P2PFA, previous articles on invoice and equity financing, visit http://tipsandadvice-business.co.uk/download (CD 20.18.04).