I always aim for this column to change your business. This month, I really hope it does by putting the spotlight on “the unknowns of business funding”.
There are two types of unknowns: the ones you know about and the ones you don’t. With the known unknowns, you can simply look up the information. With the unknown unknowns, you could find yourself hit by problems you weren’t anticipating.
As a woman in business, I get a lot of invitations to speak at events for other women in business – and quite right too: from the funding perspective women have a lot of catching up to do.
From that same perspective, however, both male- and female-led businesses have similar blind spots when it comes to securing the capital they need to grow. At Swoop we help businesses access funding, and get to hear a lot of founders’ stories. By the time customers reach our door, they have often been to the bank first.
This, then, is the first unknown: where to find funding. While banks loan money to businesses, it is not always at the best rates and there are reasons beyond your ability to pay back that might cause them to say “no”.
Unless you’ve been immersed in the world of business funding, there’s no reason why you should know that digital banking has created a much more complex lending market in recent years. Not only are there hundreds more players in the lending game, there are hundreds more products, too. If your idea of a business loan is a fixed sum that you pay back monthly, you’re in for a shock.
For example, there are a whole range of products that suit specific business needs, such as Merchant Cash Advances. These are paid back as a fixed percentage of transactions taken through the business card terminal – an ideal approach to repayment for businesses that have highly seasonal trade.
There are many more niche products, but quite reasonably, if you haven’t dedicated time to learning about them, how could you possibly know they exist?
The other unknown is that you don’t know how much money you could be saving. Businesses often have a lot of money left on the table when they start looking for funding, and it’s a mistake to bring more cash in when you could use what you already have more wisely.
At Swoop, we save businesses an average of £7,000 by switching their FX provider. That’s £7,000 that could be spent better elsewhere in your business, and if you still need to borrow,, £7,000 less to pay interest on.
We advise: be ruthless about cutting spending on things that add no value to your business. Energy bills on the wrong tariff, paid-for bank accounts with features you don’t use and debt that could be reduced through restructuring should all be in the line of fire.
The last unknown: you’re harming your business because you treat business borrowing like personal borrowing. They are very different. You should treat business borrowing as an investment from the future prosperity of your business.
An example I like: you own a run-down café in a smart area. You borrow to cover a refurb that allows you to add a pound or two to the price of every sandwich, slice of cake or cup of coffee you sell. You’ll be profiting off the investment for a long time after the loan has been repaid.
Business owners are often embarrassed about borrowing money and they shouldn’t be: borrowing is a statement that you intend to grow and improve. It is a sign that the lender thinks you’re a solid, reliable business. And unlike equity investment, you’re not losing a chunk of your business to an investor.
The business world is big and confusing, but when you know what you don’t know you’re in a far better position than when you are surrounded by unknown unknowns. Make sure that you’re exploring all the avenues for raising funds, don’t leave easy money on the table and don’t let your attitude towards borrowing undermine your business.
So now you know.
