You could be stuck when evaluating ways of getting alternative sources of funds for starting a business. Do not be stuck anymore. Lending amounts from banks may be continuing to fall, but here are 10 tips which have helped thousands of entrepreneurs get their way around the credit barrier:
1. Source for a Government Start-Up Loan
You could be eligible for a government backed loan for starting up businesses if yours is under 24 months old. Submit your application and you could get up to £25,000 repayable at a 6% p.a. fixed interest rate. Such a loan must be used strictly for venture purposes for which it was applied.
2. Overdrafts from Your Bank
Due to fluctuating revenue and income in some companies, cash flow may sometimes be hard to come by. At such times, a bank overdraft comes in handy since they are quick and flexible. How do you go about getting one? Talk to your business banker. Many banks will allow you to draw more than what is in your business account since by your relationship with them and your accounts’ cash flow statement they are able to understand how you’ll repay when business picks up.
This idea and such other products tailor-made for young business, however, come with an agreeable interest charged on the amount overdrawn. This is usually above the bank’s normal base rates and are repayable when and if it’s demanded.
For instance, a bank like RBS/NatWest will, free of initial set-up fees, provide overdraft packages £500 or less for ventures of up to 1 year. The interest they charge is 6.5%.
3. Advance Cash
Some financial institutions including Credit for Merchants, Worldpay and Business Cash Advance have a product whereby they’ll let businesses receive funds upfront long prior to invoices and debts being honored.
This happens under stated terms of agreement whereby the financial company will buy at a discount a pre-arranged fixed percentage of your company’s future debit or credit card transactions. They then advance an equivalent in cash to your business’s bank account. This is completed normally by the end of 10 business days. Your role is to then repay within the agreed percentage (10-20%) repayment schedule for each transaction.
You can, in this way, access up to £100,000 in funding. This is without having to bear collateral burdens, or even stressful monthly installments. You instead flexibly pay as you get paid by your customers. The only catch is that conditions that need to be met are quite rigorous. Check with such a financial institution and find out if your venture is eligible.
In some instances, you might need to have been in operation for more than 12 months, with average turnover at £3,500 for each month, and have an operational credit/debit card customer charge system.
4. Asset Finance
Much the same way as a mortgage facility operates, asset finance loans involve providing an asset or assets as your collateral. In the event of non-payment, this is what gets repossessed by your financier.
Examples of assets you could offer acceptably as collateral include: business premises, inventory, accounts receivable and equipment, among others. Be keen though to evaluate affordability since interest rates for such loans are usually very high.
5. Factoring
This is a viable option that often will fasten up business cash flow as well as save you time spent trying bad debt recovery. However, there are disadvantages including imposition of charges on invoices — thus slashing profits, and also it gets really hard to stop a relationship with a factor because they’d demand one-off payments of all obligations.
6. Angel Investors
These are normally entrepreneurial investors willing to fund you in exchange to getting an equity stake in your venture. One place you can shop for such investors is in directories offered by reputable companies. These companies will even give further details and examples of top active angel investor projects that succeeded to help you in decision-making.
It takes, however, a proper preparation on your side to give realistic projections and summary business plans so as to convince angel investors. This means you give up crucial business information and competitive advantages that you have over competitors in your niche.
7. Crowdfunding
This is online charity sponsorship for ideas in the business world. People will use a crowdfunding website to sell their idea and contributors will pool money once they buy the idea and are willing to support it. Popular crowdfunding sites include Crowcube and Kickstarter, among others.
Ideas here could be of business or even socially orientated. Normally, one quotes the amount they need and then describes their project. Individuals interested in funding it will contribute small amounts of money each so as to reach your set target.
8. Peer-to-peer Loans
This is a rather new but very fast-growing idea of sourcing funds. Peer-to-peer lending will, as opposed to normal bank loans for which a lot of grilling will be required, involve sourcing funds from individuals in the public sector.
Whereas a bank would require collateral, require interests, demand creditworthiness, assess business plans, among other filters, this new idea will be carried out online and individuals will offer up their money to be lent. Many established companies are already doing this and some will actually have generous terms.
9. Micro Loans
This is for businesses needing just a small amount of funding. In the UK, reputable companies that give such services include Finance Wales. They offer funds ranging between £5,000 and £25,000, which also come with a generous repayment period of between 1 and 5 years.
10. Community Schemes – CDFIs
Community Development Finance Initiatives do advance credit to businesses and individuals whose applications have otherwise been declined by banks, financiers and other money lender companies. Even though they have somewhat restrictive terms, they offer working capital and bridging loans. Some conditions you must meet include being a social venture, micro-business, or if you are based in somewhat disadvantaged areas.
11. A Bonus Tip – Your Own Family
If you can obtain a donation or lending from very supportive family members, just go for it!
