How to Raise Finance Against Your Business

There are many reasons why you want to raise finance in order to grow your company whether it is to expand your team, increase cash flow or even invest in another business project or company. If you are unsure of how to source the necessary finance, there are different ways you can raise finance against your existing business.

Before deciding what type of business funding you are looking for, you will first need to be clear about your business plan and what exactly the money will be used for.

Make sure to consider the size of your company, the amount of money you think you will need, your plan for growth in the foreseeable future and whether you want to stay involved in the control of the company. Then you should consider whether you want to explore borrowing or seeking investment.

Borrow against your invoices

There are many different types of business loans available, some of which work in the same way as a typical personal loan. However, there are different alternatives available. For example, invoice financing is a way of borrowing against your unpaid invoices in order to raise funds. (Source: FCA.org.uk)

With this type of borrowing, your unpaid invoices will be a representation of money that will be paid to you at a future date (spanning anything from 14 days to 90 days or more). These act as a guarantee to lenders in the short-term so that you can receive cash immediately and don’t have to wait until you have been paid.

Borrow against your stock

Borrowing against your stock to raise funds for your business is a fairly common approach. This could be to family or friends or as a more formal arrangement with investors or lenders. You offer these lenders stock in your company in the long-term in exchange for money in the future. The stock represents money that the company will earn in the future which will then be paid out to the lenders.

This method, sometimes known as a stock loan, is a form of secured personal loan in which the collateral is non-marginable stocks rather than physical assets. With a stock collateral loan, the borrower will transfer ownership of the stock to the lender during the lifecycle of the loan. The amount will vary depending on the agreement between borrower and lender and also the quality of the stock. Lenders will also earn any dividends issued on the loan stock during the time that they own it.

Borrow against your premises

If you have business premises, there is always the option to use this as a form of collateral. These types of loans tend to be lower risk for lenders as the property acts as a reliable form of collateral for them to approve the loan and lend the money. However, this also means the lender taking legal charge over the property.

The good thing about borrowing finance against your business premises is that it offers a great deal of flexibility; not only are you more likely to be approved for the loan as the lender’s risk is reduced, they can often be arranged over longer periods of time or allow you to borrow more. Additionally, interest rates with these loans are typically lower than on unsecured loans.

However, the main downside to these loans is that if you default a payment, your property is at risk of repossession. Additionally, the state of your property will factor into the decision of whether or not to approve your loan. For example, if your property requires work, it might not be considered as appropriate collateral for the loan. You will also need to undergo a survey report which could make the process fairly slow.

Bridging finance is a specific type of short-term loan which uses property as collateral and can cover short-term funding needs. Bridging loans can offer funding for up to 24 months (Source: Octagon Capital) before selling or refinancing a commercial property. They give access to a large proportion of the funds (usually a maximum of 70% of the property’s value).

Many businesses choose to use this type of finance as it can require relatively quick access to a large amount of funding. The downside is that their interest rates tend to be higher than that of commercial mortgages.

Borrow against your own money or investments

You could borrow against your own investment portfolio at low interest rates which could act as collateral for the lenders. This money could then be used for any purpose. However, depending on the state of your portfolio, for example if you have a large amount of money tied up in it, you may not want to borrow against this for access to quick funds.

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