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The UK is a very dynamic and open market to setup and develop a business, but like all start-ups anywhere in the World it is often a challenge to find the funds that are needed to grow and develop your business.
Here are just some of the options open to UK companies
Bank debt – this is the traditional and best-known route that most people are familiar with, however the days of the relationship manager are gone, and all the main clearing banks use an automated scoring system to make credit decisions.
If your business has been trading for less than 12 months and has yet to file accounts (you can check the filing status of company’s accounts using a service called Reporting Accounts) then the decision will mostly be based on your personal financial circumstances.
In general, this is an issue with UK banks, small businesses are treated more or less as an extension of the personal finances of their directors. Once a business has developed from the initial development phase it is less likely to need funds.
Peer to Peer lending – this is a new area and allows individuals or funds to offer loans more directly via a portal this increases the potential returns and investor can make and increases the risk but gives at the same time better rewards than are available from conventional deposits or investments.
Private Equity / Venture Capital – here professional investors offer to invest in your business in exchange for a share of the equity, this can be a great way of bringing in expertise as well as capital. The idea being that with funds invested a business can accelerate and make the most out of its market opportunity. Even a very profitable business can not generate enough cash to finance rapid expansion so the only realistic way to scale up a business quickly is to bring in equity investment, if you don’t have access to that then PE houses and Venture capital funds do.
Working capital funding – there are a range of providers offering help to fund working capital, for example Paypal the well known payment provider offers to loan you money which is then paid back via the retention of a % of each sale you then make, the great thing with this approach is that your repayments are based on each sale rather than being a fixed amount of money each month.
Advantages / Disadvantages
Bank Lending – Easy to understand and easily available if you meet the criteria of the lender
Peer to Peer – Can be an option if you are turned down for bank lending. Typically, much more expensive than bank debt.
Private Equity – No repayment if no exit, but expectation of return on investment can be really high between 8x and 40x a return on the money invested.
Working Capital – Very quick decisions, press a few buttons and the funds are in your account – flexible but not cheap either.
A UK company has many funding options open to it which reflects the advanced and dynamic nature of the British economy.