You’ve launched your business recently, and the first customers are in. They love your product or service, and things are going great.
Now that you have moved from idea-stage to being in business for real, you might be wondering how you can find funding to grow your start up. Our finance experts are here to help you understand the different funding solutions that are available to early-stage businesses looking to scale up.
If you’re start up isn’t making income just yet, then read our guide to financing your business idea.
Is my business eligible for funding?
Before looking for external capital, make sure you’re managing cash effectively. Being able to demonstrate good cash management sends out the right signals to funding providers or investors. A weekly cash flow forecast is often helpful, particularly in a growing business. But at the very least on a monthly basis, you need to track the amount of cash coming in and going out of the business. In doing this, you can get a better sense of the minimum cash flow needed to operate the business, and which levers you have to grow the business.
What business finance is best for me?
Depending on where you are in your business journey, you’ll have different options available to you. Let’s take a look at what business finance is on offer depending on how long you’ve been trading.
My business has been trading for…
Less than six months | Six to 24 months | More than 24 months
Less than six months
At this early stage, your challenge is to show that your current trading pattern is repeatable, and not a one-off situation. A great option here is a start up loan, which is a government-backed loan for up to £25,000 per company director.
Six to 24 months
In addition to the start up loan, businesses trading for more than six months are able to access further options depending on your business model, circumstances and suitability. If you’re unsure, it’s best to ask an expert from FSB Funding Platform, who can answer any questions you have.
Asset finance helps your business to purchase the equipment you need, like machinery, computers, office equipment, or vehicles, with an agreed monthly repayment over time, typically one to three years.
The benefit of asset finance is that you don’t have to pay upfront for the equipment. By sourcing your own asset finance arrangement, you can still negotiate with the manufacturer as if you are, because the asset finance company will pay them on day one.
Invoice finance allows you to take control of your cash flow quickly and easily. It works well when you are launching a new product or service and need to ramp up your business to match your growing customer base. Nowadays, you can start by financing a single invoice without and long-term commitments.
Revenue loans or Merchant Cash Advances (MCAs) are a solution very similar to a business loan. You agree the amount you borrow and the amount you need to pay back upfront with the funding provider, and repayments are made as a percentage of your turnover. It may work better for businesses that have strong seasonal trading patterns: instead of a fixed monthly amount, you pay more when you earn more and you pay less when you earn less. Revenue Loans are available for businesses that are growing, whereas MCAs are restricted to businesses that accept card or online payments.
Crowdfunding typically works best for businesses that sell products and services to consumers. A crowdfunding campaign is part publicity campaign and part fund-raising campaign, and the success is driven by a loyal base of customers. As such you need to have funds available in order to invest in the mechanics of the process. And if you are not comfortable with your funding requirements being talked about in public, then this is likely a no-go for you. However, companies with a stated mission, community projects, etc. may find this approach valuable in order to get attention and increase customer traction, alongside raising some money.
More than 24 months
Once you’ve been in business for over two years and have learnt the ropes, there are other types of business finance to choose from.
Business loans are great for predictability. You agree the amount you borrow and the amount you repay every month, and then you have certainty of your outgoings every month. Once you have two years’ worth of trading history, it will be easier for you to get attractive rates for loans, because funders need to see your track record before they can determine your credit risk.
Commercial mortgages are a useful option for businesses with a long-term view and where access to a physical presence is part of your operations, i.e. a shop, workshop, warehouse, etc.
On the basis that your business is up and running, and you have clarity on your space requirements, owning your own property removes the uncertainty of being a tenant. During COVID-19, many businesses had to manage rent payments for premises they couldn’t use, so weighing up your options is key to making the right decision.