Raising finance in an established business is different to finding funding for a brand new venture. You’re not just raising money for an idea – you need to cover your bills, staff salaries and more, and you need to do it now.
Seeking extra finance is a necessary step for any business undergoing growth, but as the cost of living crisis bites, many are facing extra pressure.
We’ve summarised a few options to think about when you’re looking for finance in challenging times.
Revisit your funding options
If you’ve received finance in the past, your current bank or lender might be your first port of call – after all, you’ve established a relationship with them, and they should be able to give you options based on what they already know about your business.
As always, a strong business plan is essential. Even if times are difficult now, a lender will be more convinced if you can set out realistic expectations and explain how the finance will help you in the future rather than trying to cover up any difficulties.
In some cases, you might be eligible to receive finance from a Government-backed scheme or lender. You can find a full list of these here, with options aimed at different business stages.
You might also try some less conventional forms of funding, such as crowdfunding, peer-to-peer finance and so on.
Invoice financing is one option to consider: if your customers are slow to pay your invoices, it can be difficult to grow and stay on top of your daily expenses.
But with invoice finance, you can get an advance of a chosen percentage of the value of each of your invoices, up to 95%. You will, however, have to pay a fee to the finance provider.
Another option is to seek finance from family and friends or use your savings in the form of a director’s loan – but this obviously comes with its risks, and it’s crucial to seek professional advice first.
If you own assets that your business isn’t using or making the most of, you could also raise finance by selling them. Be aware that this could have implications for capital gains tax if the asset has increased in value, and you’ll need to factor in the amount you claimed on capital allowances too.
There is also the Government-backed recovery loan scheme, which was first introduced during the pandemic but has since been extended.
Under this scheme, small and medium businesses can borrow loans or overdrafts of between £25,001 and £2 million for between three to six years.
You can find a lender accredited to recovery loans from the list on the British Business Bank website.
Borrowers are still fully liable for any amount they borrow, as well as interest, but should be likely to qualify for recovery loan, given the purpose of the scheme being to help struggling businesses.
Cut back on costs
If you’ve exhausted your options for finance and are still struggling to find enough cash to keep running, your next focus could be reducing your spending.
Look at your different costs, setting aside what’s absolutely crucial to running your business, to find the areas where you might be able to make savings.
This could include:
- Assessing your cashflow and finding more ways to get cash into your business
- Shopping around for better utilities deals
- Reducing office usage if you’ve converted to remote or hybrid working
- Outsourcing where necessary rather than hiring in-house
- Negotiating with suppliers for better deals or more beneficial terms
- Rethinking employee benefits, paying attention to the benefits employees really value
- Considering tax efficiencies and making sure you’re using the allowances and reliefs available