WHO NEEDS FINANCE?

Every business from its commencement and through its development and growth will need finance.

But what type of finance is best suited to the development of the business, and who should you approach for funding?

We provide guidance below on types of finance available and outline the planning required before approaching any lending institution.

PLANNING FOR GROWTH

Is finance required?
Finance is very often necessary but consider what it will entail. Additional funding requires a commitment in terms of capital and interest payments. Embarking on this course of action must therefore be carefully planned.

The business must be capable of sustaining any additional commitment to growth or expansion, and consideration will need to be given to effects on manpower, materials and space.

Tapping existing resources
Before seeking outside finance, a business must consider whether it could improve its working capital from within.

Particular attention should be given to stock and debtors to ensure that both are kept to a minimum. Consider how long it takes to bill customers and collect debts and look at ways to reduce this time.

If there are periods of time when surpluses of cash arise, review your affairs to try and ensure these are being used to generate income by investing on temporary short term deposit.

We can advise you on all these matters.

Business plan
Assuming external funding is necessary, planning is essential in achieving success. A well drawn up business plan not only crystallises in your own mind the nature of the project and the timing of any required funding, but is vital to any lending institution. They are unlikely to provide any assistance without a properly drawn up business plan.

The plan will include details of

the objectives and aims of the business

the purpose of the required funding

the business ownership and history

management and responsibilities

products and market share

sales plan and strategy

the financial position of the company with detailed cash flow forecasts and past accounts.

TYPES OF FINANCE

General
Finance is available in many forms, but it is important to make sure that it is right for your business. Onerous terms and inflexibility can often hinder a growing business.

The more obvious sources of finance include bank overdrafts and medium to long term loans and mortgages, but rates of interest can vary considerably. Therefore we advise you to consult with us before making your final decision.

Other sources of finance may be available through government backed schemes or even your own pension scheme.

Specific
Specific methods of finance are available for acquiring assets or releasing cash from debtors. Carefully consider the options available which include

leasing assets

hire purchase

outright purchase

debt factoring

invoice discounting.

Each method of funding has advantages and disadvantages including implications for tax purposes.

Other
Other means of finance may be available for your business from government sources or through the issue of shares.

Government assistance can be in the form of grants or concessionary loans, particularly if your business is in the manufacturing sector or creates new jobs. Other grants may be available on a regional or local level.

Raising finance by issuing shares may be another option to consider.

Security
Whatever form of finance is offered, the lender will always require some form of security. However the level of security sought may vary - beware the lender asking for unreasonable guarantees.

Fixed and floating charges
Most bank loans and overdrafts are secured by way of a fixed charge over land and buildings with floating charges over other assets of the company such as stock and debtors.

Personal guarantees
For some businesses little security may be available because of insufficient assets. Consequently the security will be given in the form of personal guarantees.

Take extreme care before signing these guarantees as they can be difficult to amend at a later stage and many have suffered as a consequence.

In particular, personal guarantees are best if they are limited by time or amount. Unlimited guarantees are the most dangerous. Insurance cover should be considered as a means to cover the risk exposure.

General
It may be possible to use other assets as collateral such as life insurance policies or by taking a second mortgage over your home.

Whatever the means of security pledged, it should be carefully considered and advice sought.

HOW WE CAN HELP

The means by which finance is obtained will vary enormously according to

the amounts required

the nature of the business

the risk exposure to the lender

the period for which finance is required.

Accordingly whilst some generalisations apply, individual circumstances require specific consideration. Time invested in formulating a funding strategy, whilst not guaranteeing success, will provide a structure to guide the growing business.

Our experience and contacts can enable you to achieve the means to help your business grow.

We would welcome the opportunity to assist you in formulating a business plan and obtaining any necessary finance.

For information of users:
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.