When we have conversations with small businesses about funding, we often find that it’s not clear what the business needs the funding for, what kind of funding would be best for their business, which funders they’ve been talking to.
Funding is a very complex area but there are some basic rules: you need to get the right type of funding for your business given the stage that it’s at. What do you need the money for? If it’s money to pay the bills and keep the business afloat that’s a different matter from needing money to take your business to the next stage. You need to be fundable and to be able to convince the person with the money that you are funding ready.
An agreement to put money into your business isn’t just about you. It’s also about the person handing over the money. If they aren’t happy that the money they are responsible for is going to a good home the answer will be no. They will want to know what the money will be used for, how much risk they are taking, what the return will be on their investment, or what level of risk there is that they might lose that money. They will want to know how viable your business is for the future.
Some lenders and funders will be more willing than others to take higher levels of risk. Some will be more keen than others to lend to or invest in particular types of business. You have to put the work in in advance. Many small business owners ask their banks and when they get a negative response they give up.
There’s bank lending, alternative lenders, debt funding, equity finding, asset finance, grants, Government lending schemes (https://www.gov.uk/business-finance-support), venture capital, invoice financing etc, etc. The list is long and confusing. What do they all mean and how would you qualify? It’s at this point that you need help rather than simply asking the bank.
There’s also a question to ask before getting into the funding itself. Am I at the stage in my business where it’s really money that I need? Quite often with the help of a business adviser firms realise that they aren’t yet at the point of being fundable or that it’s not money they need but the right information and support. It also might be the case that with better cashflow management systems in place to make sure that invoices are paid on time, that contracts contain better payment terms and that money owed is reaching your bank account quicker, you can achieve your current goals without additional funding.
Mentoring or specialist advice might be a better next step. That way you have help with the whole process of building up to being funding ready. You can put all the building blocks in place such as a business plan. You can make sure you know what all the questions are that you will be asked and that you have the answers in place. You will have all the policies at your fingertips that a lender might want to see.
There is a lot of homework involved in getting funding ready. Research shows that 8 out of 10 small businesses would rather grow slowly and fund the growth themselves than borrow so that they can grow more quickly. However, with all the right information and building blocks in place the whole process of getting the right funding at the right time for the right stage of your business might not be so onerous and allow you to grow quicker, innovating, creating jobs, and building a successful, resilient, sustainable business.
Start with your business adviser or accountant rather than rushing to the bank without all the information and ammunition you’re likely to need to make a compelling case for support. And don’t be put off by the first negative response. You may already have all the ducks you need. You just need to make sure they are in a row.
