I was invited to an ActionCOACH GrowthCLUB (90-day planning) session to talk about funding options for small businesses, which is always an enjoyable experience. Not only because I feel energised by the entrepreneurs in the room, but because I know I’m giving the best advice rather than ‘selling’ anything, and the audience can feel comfortable that the information given is impartial and correct at the time.
Raising Money for Small Businesses
My only challenge when talking about funding options for small businesses is that I have to be so generic about the topic. The thing with raising money for small businesses is that it is not a one size fits all solution. Every business owner is unique with their requirements, and that is why a personal and professional consultation is so important when looking for funding.
Finances for Business
A few things will determine what finance your business can qualify for. These tend to be set in stone, and can affect how much you can borrow, the price you pay, and who you can borrow from!
I refer to these as limiting factors;
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Home-ownership – If you are a tenant, it can limit the number of funds a lender will consider lending.
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Company and directors’ credit scores are equally important; even though they are lending to your company, they entrust the Directors with the money. Therefore, credit scores could factor highly in a lending decision.
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Company’s turnover – Most lenders will look at the recent historical performance of a business. Based on this, they will only lend a percentage of the turnover. If you need more, you will have to find a lender who will go on forecasts.
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Several years trading – You are considered high risk under two years. Over 5, you will get better rates if the company’s performance is good.
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Directors’ business histories – We all have a past, but if there are multiple failed businesses in the background, that will flag as high risk.
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Balance sheet levels – Many lenders like to see a good balance sheet or money left in the business at the end of the year. If your chosen lender is a balance sheet lender, it will need to be strong.
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SIC codes – The code you choose on Companies House when you first set up a business. Check it is still relevant to your business; some lenders have a clear ‘no lend policy’ to certain SIC codes.
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Affordability – For me, this is the most important one, can your business demonstrate the repayments? If it is tight, they won’t lend. It would be best if you had clear affordability.
Making the Right Financial Decision
Business owners should consider asking the following question before applying for loans ‘Is the option I am choosing the right solution for my business’ finance challenge?’
Getting the wrong solution could be as detrimental as not getting the money! I always advise that a business sense checks the options available to them for the requirement at hand, and WILL IT give to the return on investment you are looking for?
Working with a business coach can help you get to the crux of your requirement, and then consulting with a finance specialist can ensure that you are getting the best options for your business.
If you want to discuss any finance requirements, contact claire at www.choicebusinessloans.co.uk or call her at 01494 410 125
Good luck with your business growth. You have got this!
