Simmers & Co
Topical Points Answer
Sources of Business Funding
Although there are many sources of funds available to small businesses, they all carry different obligations, opportunities and responsibilities. You should understand the differences so that you can make an informed choice.
The most common options from your bank will be overdrafts and loans and they will provide any sum. You need to repay both of these over a period and pay interest on the amounts borrowed. You will also, probably, need to put up security to cover the capital (this could include a personal guarantee from an owner) and show you can repay both capital and interest.
This type of finance is used mainly to provide funds to buy assets such as vehicles, computers, machinery etc. The provider will provide the money to purchase the asset and you will repay this plus interest. The asset will provide the security for the borrowing, although you may need to pay a deposit. Title to the asset remains with the lender until the asset has been paid for.
Those providing this type of finance will give you funds to cover the period between delivering the goods to your customer, raising your invoice and receiving payment. Up to 80% of the value of your invoice can be provided. Invoice Factors can manage your whole invoice collection process for you, the security being the full value of invoices raised.
There are many other means of raising finance, such as Business Angels (individuals who back businesses) and Venture Capital Firms, who will usually only lend funds in excess of £50,000 although business angels can sometimes invest much lower amounts. For short term finance credit cards are still useful.