General finance
There are many types of finance available, but it is important to find one that is right for your business. Choosing a wrong type of finance can hinder a growing business.
The most available sources of finance include bank overdrafts and medium to long term loans and mortgages. Be aware that rates of interest can vary considerably depending on the type of finance. Therefore, we advise you to consult with a professional adviser before making your final decision.
Specific finance
There are specific methods of finance available for acquiring assets or releasing cash from debtors. You should consider the options available which include:
- leasing assets
- hire purchase
- outright purchase
- debt factoring
- invoice discounting
Each of these funding methods have advantages and disadvantages including implications for tax purposes.
Other finance
There are other means of finance available for your business from:
- government sources
- the issue of shares or
- your own pension scheme
Government sources can be in the form of grants, loan guarantees or an enterprise capital fund on a regional or local level. The British Business Bank is a government owned company which aims to make finance markets work better for small businesses. It works with over 80 partners such as banks, leasing companies and venture capital funds.
Another option to consider is raising finance by issuing shares to investors.
Security
The lender will always require some form of security before offering the finance. However, the level of security sought may vary considerable and you should beware if the lender is asking for unreasonable guarantees.
Fixed and floating charges
The banks usually secure their loans and overdrafts by way of a fixed charge over land and buildings. Or with floating charges over other assets of the company such as stock and debtors.
Personal guarantees
For businesses with insufficient assets little security may be available. In these circumstances the security will be given in the form of personal guarantees. You should take extreme care before signing the personal guarantees, particularly the unlimited ones. This as it can be very difficult to amend them at a later stage and many borrowers have suffered as a consequence. It will be better if the personal guarantees are limited by time or amount.
General
Another way is to use other assets as collateral such as life insurance policies or by taking a second mortgage over your home. Whichever type of security pledged, it should be carefully considered and professional advice sought.
