Finance for Small Businesses – What Are the Options?

John Atkinson, head of commercial business at Hitachi Capital Invoice Finance

As businesses look to accelerate their growth plans now that all the general election hype has passed and the economy continues to strengthen, SMEs are still finding it a challenge to source the finance they need.

The government is taking steps to help SMEs through measures which will be implemented next year as part of the Small Business, Enterprise and Employment Act. However, firms need to stay abreast of all the available finance options.

John Atkinson, head of commercial business at Hitachi Capital Invoice Finance, explains:

Bank loans and overdrafts –These are traditional forms of lending that can be usually difficult for small businesses to obtain due to the strict due diligence checks that lenders impose. Although banks are stepping up support for SMEs, many of the products available such as a loan or overdraft require a personal guarantee to borrow against.

Peer–to-peer lending –P2P lending has grown in popularity as a form of lending for businesses and is an alternative form of finance that provides access to unsecured loans. Many of these lenders compete in an online space and are much more open to offering a loan to small firms based on a short-term risk assessment – hence, they can be more straightforward to secure than a traditional bank loan.

Invoice finance – Invoice finance is often overlooked as a means of gaining access to finance. Invoice finance companies provide businesses with the cash they need upfront, based on the value of any unpaid invoices, minus a small fee for collecting the debt. This means that instead of having to wait 90 days to receive payment for the invoice raised, businesses can unlock the cash they need straightaway.  There are two types of invoice finance – ‘factoring’ is where the invoice finance provider collects the money from customers directly, and ‘discounting’ which allows the business to handle all the correspondence themselves.

Business angels/ venture capitalists – Essentially the Dragon’s Den route where wealthy individuals offer business owners a large sum of their personal cash – the investment is usually in the region of £100-500k in exchange for a share in the business.

Crowdfunding – Crowdfunding is similar to peer-to-peer lending in that businesses advertise their ventures in an online space and potential investors will express their interest via the platform. A variety of established crowdfunding platforms exist and depending on which is used, businesses may also be able to tap into specialist support in the form of sector knowledge or business management expertise. For example, Crowdcube is Europe’s largest network of angel investors. It pairs businesses with professional investors to raise finance and is also one of the only crowdfunding platforms supported by the government-backed London Co-Investment Fund (LCIF) – https://www.crowdcube.com/pg/businessfinance-3

Accelerator programmes – Ideal for early stage or start-up businesses looking for mentoring and support to get their ideas off the ground. Many accelerator programmes are government-backed initiatives that provide entrepreneurs with access to industry experts and match them with investors. In return for their specialist knowledge, individual investors will expect a share of the business in exchange for their involvement. For example, Oxygen Accelerator is one of the most successful programmes in Europe for technology start-ups. It provides entrepreneurs in Birmingham and London with access to mentors and the professional services network to help them commercialise big ideas –  http://www.oxygenaccelerator.com/