The internet is absolutely full of well-intentioned and highly objective advice about how to obtain business funding.
Although this article is another of these, here we’ll take a slightly alternative tack and boil things down to basics. That’s because there are so many potential sources of funding that no single article can possibly cover them all – it’s a job for a book!
So, let’s look at the core issues associated with searching for funding for business.
There is no single solution
As touched on above, there are literally dozens of potential funding options but not all of them will be open to you or suitable. For example, is your business looking for finance because:
- you’re a green-field start-up with no trading background and little or no finance behind you;
- you’re anticipating significant cash flow challenges until an existing contract is completed and paid for;
- you want to substantially and expensively expand your existing production capabilities?
There might be very different approaches to business funding and potential solutions that would apply in each case.
Borrowing versus self-funding options
Some approach the question of finding funding for business on the immediate assumption that this is exclusively a question of persuading someone to lend/invest in the business concerned in return for something – perhaps such as a share of ownership.
In fact, it’s typically preferable to try funding as much of the required sums as possible yourself by things such as equity release type solutions. Examples might include borrowing against equity you might have in your property.
This type of funding is sometimes the easiest to obtain and is typically amongst the more cost-effective solutions.
Those solutions can often include a mixture of approaches because some lenders like to see that you’re risking your money as well as theirs. It’s a sign of commitment and confidence.
It’s perfectly possible to effectively trudge around cap in hand to a large number of individual lenders, hoping to get lucky.
In practice, such approaches are rarely successful. Nor do they typically result in optimal solutions for the borrower. There is a huge difference in approach required say for a Business Angel versus crowd funding or a venture capitalist.
Unless you’re an expert in business funding, there’s a chance you’ll waste a lot of time and become disheartened because you’re simply approaching either the wrong people entirely or the right people but in the wrong way!
It is typically a sound idea to approach a specialist in finding funding for business at the outset. They may be able to offer you advice and guidance in approach and suitable options – that might help reduce your hassle factor and lead to faster access to funds.
Get to know your own business
Sadly, it’s not unusual to encounter business owners who have set out to try and convince lenders to part with cash but who are also unable to convincingly summarise their own profit and loss position or their balance sheet.
Remember, it might prove to be difficult to persuade potential lenders that you’ll be a safe pair of hands for the future of your business and their money, if you don’t look as if you understand the reality of your business position as it stands today.
Before starting to worry about individual future funding for business possibilities, spend as much time as you need making sure you thoroughly understand the basic books of account of your existing business. Spend money on an accountant to help if necessary – it may be a very good investment downstream.
At the time of writing, the UK’s economy appears to be fairly active.
There is no reason why, with groundwork preparation, some lateral thinking and some professional assistance, you should not be successful in your search for funding. Start with the basics though and don’t get bogged down too soon in the minutiae of exotic funding solutions. That can come later!