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Financing Your Small Business in 2016

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We appreciate that, in this day and age, financing your small business can be difficult. That’s why we’re here to help guide you along the way.

Though not all of the below options will be available to you and your business, they each provide options for financing SME growth that have either been long-time favourites (see: investment finance, loans and overdrafts), or that are becoming more popular every year (see: crowdfunding and presales).

Keep in mind that before looking too deeply into any of these options, you should consider exactly how much financing your business needs (a monetary value) to achieve its current growth goals.

Investment Finance

Investment financing comes in many forms, from angel investors looking to help get your startup off the ground in exchange for a (potentially) 10 percent or greater stake in your business, to  venture capitalists offering you a much greater amount of investment income, for a much smaller stake, once your startup has begun to prove itself. Both of which can prove a lucrative solution to financing your small business. 

If you’re interested in the different types of business financing, click here.

Loans and Overdrafts

Financing your small business with loans and overdraft income provides you with the benefit of getting necessary financing without having to give away any of your company, but unlike receiving investment finance, loans and overdraft financing can be very inflexible and, in the case of overdrafts, you may have to repay them on demand. This presents a company wide risk that could leave you on the back foot. 

Government Grants

Government grants are an excellent source of SME and startup financing, especially if you’re lucky enough to be rewarded one with no strings attached. Naturally, however, competition for these grants is tough, and although it’s good to apply for any grants your business could potentially be considered for, be sure to look into other methods of financing as well.

The EIS and SEIS

We’ve spoken about the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) numerous times on Tax Agility in the past, so we’ll keep this section short. For more information on both, follow the links above.

Invoice Financing

Though arguably the least exciting method of SME financing on this list, invoice financing consists of:

– Factoring: An invoice financier pays you a percentage of each invoice owed upfront, then collects the money owed by your customers, before handing you the remainder and you paying them their fees, and

– Invoice Discounting: Similar to factoring, except an invoice financier lends you money against your unpaid invoices, with you paying them a fee. Once your customers pay these invoices, the remainder goes directly to your invoice financier.

Update: Ban on Anti-Invoice Finance Terms makes Invoice Financing even easier.

Crowdfunding

Online crowdfunding has been with us for several years now, and it doesn’t look set to go away any time soon. The draw is obvious: for a startup looking to get off the ground, crowdsourcing provides them with a platform from which to advertise their products and services while raising finance relatively quickly from around the world.

Presales

Similar to crowdfunding, online presales allow startups to raise financing before they even produce their product by successfully advertising your soon-to-be product on their platform, asking for your customers to pre-order (and pay for) the product before it’s made, then using the money generated to go away and physically produce your product.

Experienced Accountants

To speak with a professional accountant to discuss the preferred methods for financing your small business or startup, or for anything else, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

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