Where Do You Go For UK Business Funding

Let me recall, tongue in cheek, the old joke about the guy who asks the finance company 'how do I stand for a loan?' To which the finance company replies 'you don't, you kneel!'

Most business require extra funding at times and some may even relate to the old joke above. Broadly speaking there are two settings for business that ask for funding. One where funding is needed because business is expanding and requires more resources, or secondly because things are going badly and the business is running out of money.

Depending on what setting a business finds themselves in will determine where's the most appropriate place to source some finance.

If things are going well, business is expanding and orders are strong then almost anyone will kindly offer you finance to continue the growth of your business.

About 70% of businesses will go to their main bank for extra funding and may well get it. The major disadvantage is that the bank will usually require some form of security, usually your own home. If things go wrong then it will mean the loss of your home if you've secured funding against it. If you are still feeling confident then you've just found a source of funding. Perhaps the bank will lend against your debtor book (yes, that's an asset in your business too). They will still probably look for some form of Personal Guarantee which usually involves a charge that will see them securing the finance to your personal assets (yes usually the home again) if things start to go wrong.

If cashflow is tight or non-existent then things are going badly! If things are going badly and let's face it lots of things can go wrong, where to go for your financing then? Let me use an 'F' word - Factoring!

A company's largest asset, next to property, is usually their debtor book. It is possible to outsource the collection of monies on invoices to a factoring company who will then forward you a percentage of your debtors outstanding monies for a fee. Factoring used to be considered a 'dirty' word but these days more and more companies now outsource their credit control to factoring companies, than at any other time. This can be a very overt project called factoring or a very confidential project called invoice discounting. Your clients will know if you are factoring your debtor book but will not have any idea if you are using invoice discounting. Both methods will inject much needed cashflow into your business.

Still need money but the banks and factoring companies won't lend what now?

Typically there are three common sources for money: friends, family, and the foolish!

If you can make a good case for your business then there are foolish people out there who will lend to you. Well OK, they are not so foolish as to just give you money but they will take a risk if the proposition seems profitable. If friends and family rally round too then perhaps you can get the much needed funding.

If all the above fails then it's time to look around again.

Commercial lenders, grant funding, business angels and venture capitalists are all possible ways to get funding. Some will only lend a few thousand pounds whilst the likes of commercial lenders may be able to fund into millions of pounds. All have their strengths and drawbacks.

The bank needn't be the only place to consider when asking for funding but do make sure that you have calculated your figures.