How to Raise Funds for the Expansion of a Growing Business
So, you’ve managed to get your business ideas up and running but in order to make your venture a resounding success, you need to raise some much-needed capital for the purposes of expansion. The only problem is that you are unsure of the available options or the steps you need to take in order to achieve the additional funding you require in order to reach your goals.
The one thing you should aim to do when applying for extra funding is to always ensure that you have the upper hand by applying for a business loan when your finances are in good shape, as opposed to applying when you are in dire straits and in desperate need of a cash injection in order to balance the books.
The reason for this is that a lender will be much keener to provide funding when they are confident that their investment is in safe hands instead of being under the impression that they are simply throwing their cash away on a business that is about to go down the tubes due to bad financial management.
The different types of funding available
There are a number of ways to attract further investment as a means of boosting your available funds and these are as follows:
Cash for Equity – A funding method which relies on the exchange of shares in a company in return for a cash investment. If your business is relatively small, you will normally be expected to hand over a larger stake of your firm in return for a smaller amount of funding.
Grant Funding – Various cash grants are sometimes made available to business start-ups via government schemes or trust fund initiatives. In these instances, you will need to show that you are able to meet certain goals as a result of the funding being offered.
Business Loans – Money lent against personal or business assets.
Crowdfunding – In some cases, you may be able to raise additional funding through advanced selling techniques. There are a number of recently launched crowdfunding websites that enable a business to procure the cash needed to bring a finished product to market in exchange for promising these goods to members of the public and other businesses who are willing to invest upfront.
In the following sections, we will take a look at some of the above-mentioned funding options in a little more detail.
These can be divided into the following subcategories.
Business Start-up Loans – If your company has been trading for less than 2 years, you should easily be able to apply for a start-up loan. You will need to provide a workable business plan whilst proving you have the ability to afford repayments. You can typically apply for this type of credit directly over the phone or online. Start-up loans often have low-interest rates and borrowing terms are usually available up to five years.
Invoice Discounting – A type of finance that is raised against funds that are owed through invoices. Minimum terms start at 12-months and you can secure finance against a single invoice from a large client that you have a contract to supply, or against all of your invoices combined.
Asset Loans – Any equipment you rely on for the manufacture of products can be purchased on HP or leased. This is a cost effective method of spreading the repayments over the lifetime of the machinery you use.
Raising Funds via Investment
One method of raising funds for your business is by trading some of the equity in your venture in return for a lump sum payment. In this scenario, investors seeking to make a return on their funds will make a pledge in return for a share of the future profits that you expect to earn.
Some investors will look to exchange funds in return for a large share of your company when it is just starting out. If your company has been trading for a while, then you can often get a better deal by offering a smaller percentage in exchange for a larger investment. If you are planning to raise a substantial sum of money, in excess of £1,000,000, then the chances are that you will need an accountant or an experienced advisor. You will also need to produce a viable business plan, particularly if you are looking for a Venture Capital investment.
Crowdfunding is another means of attracting shareholders and this is done online. Instead of attracting a single investor, several smaller investments are made by members of the public and, in some cases, other businesses. This is done in exchange for new products and exclusive offers as a means of rewarding those who invest in your business plans.
In some cases, grants may be made available. These are usually available based on the geographical location of your business. Grants are also available to those offering specialist services and those who excel in innovation, although this depends entirely on the local authority issuing the grant.
When applying for a grant, it is important that you fill in the application form to the best of your ability and that you take extra care to ensure you meet the criteria. The vast majority of grant funds are often withheld in situations where the applicant fails to satisfy the requirements of the party issuing the grant.