Raising capital for your small business can be one of the most difficult and stressful parts of owning a business. It's time-consuming, often involves costly fees, and you may not get the money when you need it. But with the right advice, you can find the right financing option for your business.

There are a few things to consider before taking out a business loan, such as how much money you need, the length of time you need it for, and your creditworthiness. With that being said, below are different ways to finance your business or types of loan facilities:

Business loans

One of the easiest ways to raise money for your business is with a business loan from a bank or other financial institution. However, this depends on how much money you need, how long you need it for, and what your creditworthiness is like. There are three main types of business loans:

Commercial loans – this is a type of loan that's commonly used by large businesses, such as restaurants or retail stores, for short-term growth. They generally involve larger amounts of money over longer periods of time.

Equity financing

Another option for raising money for your business is equity financing, which is when you sell a stake in your business in exchange for funding. This can be a great option if you don't want to take on debt or if you need a large amount of money. However, it does involve giving up some control of your business, so it's important to weigh the pros and cons before deciding if this is the right option for you.

Crowdfunding

Crowdfunding is when you raise money from a large group of people, typically through an online platform like Kickstarter or Indiegogo. This can be a great way to raise money, especially if you have a strong online presence. However, it can be difficult to reach your goal, and there's no guarantee that you'll get the money even if you do reach your goal. 

Asset Finance

Asset finance is a way of funding the purchase of assets using debt. This can be done either by taking out a loan or by leasing the asset. Asset finance can be used to fund both personal and business assets.

There are many benefits to using asset finance, including the ability to spread the cost of an asset over its useful life, freeing up capital for other purposes and potentially reducing the amount of tax payable.

Asset finance can be used to fund a wide range of assets, including vehicles, machinery, equipment and property. In some cases, it may also be possible to use asset finance to refinance existing assets.

Alternative Business Overdraft

An alternative business overdraft is a type of financing that can provide your business with the working capital it needs to cover unexpected expenses or opportunities. With an alternative business overdraft, you can borrow up to a predetermined amount at a competitive interest rate and repayment terms that work for your business.

if your business is in need of quick funding to cover an unforeseen expense or opportunity, then an alternative business overdraft may be the right solution for you. With an alternative business overdraft, you can get the funds you need quickly and at a competitive interest rate, making it easy to manage your finances and keep your business running smoothly.

Invoice Factoring

Invoice factoring is the process of selling your unpaid invoices to a third-party company in exchange for immediate payment. This can be a useful option if you're struggling to make ends meet and need cash flow fast.

The main benefit of invoice factoring is that it can give you access to much-needed capital quickly and without going through the traditional lending process. This can be a major advantage if you have bad credit or are otherwise unable to qualify for a loan.

There are some disadvantages to invoice factoring, however. One is that it can be quite expensive, as most companies will charge fees for their services. Another is that by selling your invoices, you're essentially giving up control over when you get paid – the factor will typically collect payments from your customers on your behalf and then send you the funds less their fees.

Get the money you need to help your business grow today, call us on 0203 2909019

For most new businesses that fail, the reasoning behind their collapse has something to do with cash flow problems.

Those first few months when your business is just finding its feet are vital and before business owners begin trading, they need to make sure they have enough money to set up the business and cover initial running costs.

So, what are the most common sources of finance when you are starting your business and which are the most reliable?

Personal savings and informal loans

This is the most common sort of finance for those that are starting their own business. Informal loans are those that are provided by friends and family that may be on preferential or 'soft' terms, including the possibility of an interest-free loan.

Relatives or friends may also consider investing money in a business in return for a share of its ownership, even if they act as a 'sleeping partner'.

Venture capital

Venture capital is a method of financing a business where a proportion of the firm's share capital - or equity - is sold in return for a cash investment in the enterprise.

The only downside of this financing option is that it means some measure of control or ownership over the business must be passed over to the new shareholder.

Business angels

Business angels are private investors who look for opportunities to invest money into new or growing small firms. Most regions of the UK provide services that match business angels with suitable start-ups, which encourages local investment and mentoring on a small scale.

Equity-based crowdfunding

Crowdfunding is when multiple people invest a very small amount of money in a business. Crowdfunding platforms are available that can match businesses with relevant investors.

Government grants

Grants provide finance to allow a business to undertake a specific project that, without financial assistance, would not be able to proceed. Such projects might involve the initial start-up of the business, developing a new product or buying equipment.

Unlike a traditional loan, grants generally don’t have to be paid back unless the business fails to comply with the specific eligibility requirements and conditions of the scheme.

Are you seeking finance for your start-up business? We have a number of funding options available on our site and are able to match businesses with high-quality investors. Find out more here. 

Securing finance for your SME can be a challenging and, at times, very confusing process, mainly because there are so many different types to choose from.

Whether you are opting for a traditional bank loan or are choosing to go for an alternative type of finance, ensure that you always make the right decision by checking out our guide to the main differences between the types of finances available to you, including the merits and drawbacks of the ones that you are considering.

Traditional bank loans

Banks are the largest small business lenders and are also the first thing that most businesses think of when it comes to securing finance for their SME. Bank loans can be an effective source of finance in the sense that they offer very low, fixed interest rates along with predictable monthly spending, making it much easier for you to manage your money on a day to day basis.

Sounds good, right? Well, unfortunately bank loans do come with their downsides that include lengthy paperwork and a longer waiting time to secure the money, meaning it’s not a particularly good option if you need funding fast.

Venture capital funding

If a venture capitalist believes that a business has potential and can also recognise a unique selling point or competitive advantage, it will choose to invest money in it. While a venture capitalist is unlikely to get involved in the day-to-day running of a business, what they can do is help the business to focus its strategy. While there are a number of merits of this type of finance, it also comes with a number of drawbacks. Firstly, it can be a very costly and time-consuming process. Your business will also incur legal fees whether an investment is secured or not.

Crowdfunding, also known as P2P or Peer-to-Peer Lending

This is becoming an increasingly popular way for businesses to obtain funding and is essentially when companies are connected with thousands of investors, some of whom may either be current or future customers. Raising equity finance in this way through internet-based crowdfunding platforms can be an alternative to seeking angel or VC finance through more traditional routes for start-up, early-stage and growth companies.

Pay as you trade finance

Pay as you trade finance is a good option for any businesses that have a high volume of customer card payments and transactions such as firms working in the retail and hospitality sector. This type of finance option will improve your cash flow because rather than having restrictive monthly payment obligations, you pay a percentage of what you earn. 

If you need to secure funding for your SME startup or to facilitate the growth of your more established company, get in touch with GIC Capital today to find out how we can help you reach your full potential.