Ignore the headlines. With the right plan in place you can secure the finance needed to accelerate business growth – here’s how
As we face the threat of a triple-dip recession and more high-street chains go under, talk of business growth seems laughable – even if that’s gallows humour, at best. Yet finance is out there for British companies with solid expansion plans, and loans and funding don’t have to be hideously expensive, either. You just need to know where to look. Here’s our essential guide to financing your business for less.
1. Use the Funding for Lending Scheme (FLS)
An evolution of the (almost) defunct National Loan Guarantee Scheme, the FLS was brought in last July to help reduce borrowing costs for both businesses and those with mortgages.
The scheme supports various competitive offers banks want to make through access to cheaper funding – such as offering cashback and other negotiable discounts. For example, Lloyds TSB Commercial Banking are applying an interest rate reduction of 1% on all approved business loan, commercial mortgage and hire purchase applications. The FLS is set to run until January 2014.
What’s more, the reduced rate lasts “the loan’s entire lifetime”, according to Stephen Pegge, Director of SME Markets and Corporate Communication at Lloyds TSB Commercial Banking. “We’re keen to encourage firms to invest now for growth, and we’re delighted to be able to offer UK businesses cheaper funding,” he adds.
2. Try the Enterprise Finance Guarantee (EFG)
For SMEs with strong business plans but little or no security, Number 10’s well-established Enterprise Finance Guarantee is a strong option. The government’s initiative underwrites loans made by participating banks. So far it has helped 20,000 firms access more than £2bn – with Lloyds TSB Commercial Banking involved from the word go.
“It’s a great support mechanism for customers who we would normally lend money to but who do not have security available to support their lending request,” says Stephen Pegge, Director of SME Markets and Corporate Communication at Lloyds TSB Commercial Banking.
3. Talk to your bank about invoice finance, invoice discounting and factoring
Once considered an overpriced lender of last resort, invoice finance is very much back in vogue – with SMEs using it as an effective way to manage cashflow. With factoring, the funder also manages the client’s sales ledger, whereas invoice discounting is essentially a finance service, provided confidentially.
One fan is Denys Shortt OBE, the founder of DSC, the UK’s largest distributor of health, beauty and household brands with sales of £150m. How did he build the business to this scale? “I started the business by offering my house as collateral for a bank loan back in 1994,” Shortt explains. “I then used invoice finance as the way to finance the growth. We are a perfect example of how it works and our growth has been amazing.”
4. Explore crowdfunding
If ever there was a funding zeitgeist, this must be it. Born in America – where else? – this grassroots model of funding turns the act of accessing finance completely on its head. Through online platforms, customers and fans pledge money to fund a business’ growth in return for gifts from the company once it’s completed its development.
It’s best suited to consumer businesses with a strong fan base. Brixton-based restaurateurs and food-bloggers Ellie Grace and Rosie French, for example, are looking to crowdfunding to partially fund their business’ growth. Having made their debut on the cookbook scene last year, and with their restaurant French & Grace enjoying an ardent following, the duo plan to open a second restaurant.
Their high profile fits the crowdfunding model perfectly. “In return for a small investment we can offer our customers benefits such as the option to book the restaurant out for private events or have reserves on priority tables,” explains Grace. “All of which is a relatively small cost to us but provides great value to our customer”.
5. Entice investors with EIS and SEIS
The government’s Enterprise Investment Scheme – and its younger sister, the Seed Enterprise Investment Scheme – help higher-risk businesses attract investors by offering tax breaks when they buy new equity in a business.
Entrepreneur Cyrus Tchahardehi used EIS to attract the investment he needed to develop his online hospitality network, Rehoba.com. “For a web business like ours, getting an unsecured loan – even with the government’s guarantee schemes – is difficult,” he says. “The advantage of the EIS scheme for our investors was clear from the beginning and made investing in Rehoba much more attractive.”
6. Meet with business angels
Business angel networks have bloomed in the downturn, with most cities boasting regional operations that are highly accessible. Their accompanying support options – drop-in sessions, networking events and Dragons’ Den-style pitching days – show no sign of declining either.
As well as getting the funds in, for many smaller and higher-risk businesses angel investment can be a great way to show their bank they have a stamp of approval. “We look favourably upon businesses that gain private investment,” says Stephen Pegge, Director of SME and Corporate Communication, Lloyds TSB Commercial Banking. “An angel or other private investor brings capital, contacts and expertise. We work closely with angel networks.”
So what are you waiting for? Start exploring your options and get that smile back on your face.
To find out how Lloyds TSB can support your business needs, visit www.lendingforbusiness.com
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