How to finance an expanding business in the UK


Your business is growing, and that’s a cause for celebration! But with an expanding business comes the additional pressure to find funding that will allow you to take the next steps and keep pace with the growth.

Very few entrepreneurs who wish to grow their business and take it to greater heights are able to do so without seeking some kind of commercial finance. But where are the best places to look for this kind of funding?

The following are some of the ways you can finance an expanding business in the UK:

Who offers finance?

The best financial institution to approach depends on the type of funding you believe will be most suitable for your business and how much money you would like to borrow. The following are some of the options that you may have:

  • Hedge fund managers
  • Individual investors
  • High street banks
  • The government
  • Members of the public

Types of business finance

How much finance you can apply for and how much of it will be approved for your business depends on the type of finance that you select. How much interest you will need to pay and also the terms of the investment will differ from product to product.

The following are the advantages and disadvantages of each option:

● Business Loans

A business loan can fetch you somewhere between £1000 and £3 million worth of capital. The time frame over which you need to repay the loan can be anywhere from a month to 15 years depending on which financial institution grants the business loan to you, and the size and type of business you run.

Business loans can be of several types. There are some which work in the same way as personal loans do, while there are others which allow you to sell a fraction of your debit card sales or your unpaid invoices to raise funds.

The stature of your business certainly has a bearing on the lender’s decision whether or not to approve your loan, but it is an equally-feasible option for both small to medium sized enterprises as well as startups.

Another type of funding that you can explore is credit line or revolving credit facility, which allows you to withdraw money as and when you need it. Instead of receiving a lump sum amount of money all at once and having to pay regular interest on the whole amount, you can withdraw a small amount of credit and pay interest on only what you have withdrawn to date.

● Business credit cards

A business credit card works in exactly the same manner as a personal credit card. It allows you to make purchases on credit and make payments at a later date. This option is ideal for those who need to make purchases on a daily basis, or wish to use credit cards for payment of expenses and business transactions. These cards can be used by several members of staff within the same organisation.

One added advantage of using a business credit card is that most companies which provide these cards also offer incentives such as cashback, air miles and rewards. Some of these companies also offer 0% interest on purchases for a specified period of time. However, these cards are usually available only to those businesses which are already trading and therefore startups may not be eligible.

● Business Overdrafts

A business overdraft functions in the same way as a personal overdraft does and it is ideal for businesses which need flexibility when it comes to borrowing. Interest is charged on the amount of money that you have borrowed and it is usually calculated on a daily basis. You may also have to pay an arrangement fee along with the interest.

Similar to business credit cards, there are some business accounts which do not charge any interest on overdrafts but it is usually a limited period offer which may not be extended beyond the first twelve months of opening an account.

Business overdrafts are generally offered to well-established businesses and the size of the overdraft depends on a business’s credit record and finances. The amount of money that a business can borrow however, is usually relatively small and may not be sufficient for businesses looking to borrow a very large sum of money.

● Crowdfunding

If you wish to raise funds for your business through crowdfunding, you need to pitch your business idea on one of the many internet crowdfunding platforms that have popped up in recent years. You need to be willing to offer rewards or perks to investors as part of your pitch which they can cash in when your business is successful in raising the capital it needs. This is called reward or donation crowdfunding.

Compared to other ways of raising capital, crowdfunding is certainly a convenient option.

Unlike most credit providers, crowdfunding is an alternative which can be explored by both existing businesses as well as new companies to raise money. Besides rewards crowdfunding, other popular models of crowdfunding include debt crowdfunding and equity crowdfunding.

When investors lend you a certain amount of money and demand that the borrower should pay interest on the borrowed amount, it is known as debt crowdfunding. Equity crowdfunding, on the other hand, is when you give up equity in your business in return for an investment.

● Angel Investors

An angel investor is a type of lender who demands a stake of ownership in your company in exchange for the money that they are willing to invest in it. Angel investors are concerned with the potential of a business and invest in startups as well as established businesses.

Angel investors may not interfere in the day to day operations of your business but they are known to place restrictions on the way in which their investment is used by a business. For instance, they may lend you money to buy machinery but not for repayment of debt or other daily expenses.

The type of finance that you apply for can impact the profitability of your business in the short and long term. It is therefore a decision which must only be taken after due consideration of each available option. Take your time and choose wisely, taking into account the advantages and disadvantages of each, and how they will impact your business.

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