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If you are experiencing difficulties in persuading your bank to lend to your business at a reasonable rate, you may want to consider some alternatives such as grant funding, soft loans, business angels, asset finance and invoice finance.
There are a number of grants currently available - these tend to go to businesses which are able to fill public sector needs for reducing unemployment and addressing skills shortages in economically-deprived areas or to those businesses which cover some other social objective such as reducing the carbon footprint of a business.
Such loans tend to have lower interest rates than conventional bank loans and require no assets for security. They are usually administered by business support and funding organisations driven by social objectives, such as The Prince's Trust or the Carbon Trust. You may find it is worth talking to your local Business Link or trade association to find out if any apply to you.
Business angels are individual investors who have cash to invest in businesses in return for a share of the business - like the investors you see on the BBC's Dragons Den! They are usually attracted to innovative and high-growth businesses where there is an opportunity that they will get them a reasonably quick return on their investment. However some are interested in looking at businesses where the idea is sound and there are viable prospects but there is a short term cash flow problem.
Family and friends
Obviously you would have to be really sure of the prospects for your business before asking family and friends to invest - if things do not work out, there could be a personal bust up! Always ensure that you have a formal signed agreement in place with regards to the structure of the lending and the repayment of the money.
Asset finance companies will buy the equipment and lease it to you. It is therefore a really useful way of getting the asset you need without shelling out a lot of money up front from your working capital as you pay installments over the period of the agreement. Some asset financiers will even buy your existing assets and lease them back to you. It is important to understand what type of deal you are entering into as you will need to check out ownership options at the end of the deal and also the tax implications.
Invoice finance companies will provide you with cash in the form of a loan on a proportion of the value of the invoices as soon as you have raised them. In return, you will be charged daily interest on the loan balance and a management fee. Typically, you will need a turnover of around £200,000, although some invoice financiers will consider less.
If you are interested in learning more about any of the above or indeed other forms of finance which might be available to your business, then our corporate finance team will be happy to have a chat with you. Please contact Andrew Ewing on 0131 440 5000 or firstname.lastname@example.org.