Improving the odds of securing finance – Getting lenders on the hook
Counter to usual complaints about small firms’ limited access to finance, there currently exists an unprecedented number of funding options available to small UK businesses. The issue, argues co-founder of online platform Capitalise, Paul Surtees, is being able to find the product that best fits your business.
While we believe that aggregation ultimately holds the key to helping businesses navigate the somewhat obscure funding marketplace, it’s also important to identify what different potential lenders are looking for.
Whether you’re a small business owner looking for finance, or an accountant offering counsel to a small business owner, it’s necessary to understand what will get lenders on the hook. Small businesses can improve their odds of securing finance in a number of ways.
Purchase orders, invoices and assets
Even if you have limited assets, a purchase order from a strong buyer gives you a firm financial leg to stand on. Purchase orders are a great first step into trade finance. As long as you have more than a 30 per cent margin on the order in question, it can help secure finance for trade, either domestically or internationally.
Similarly, the invoices you send to other businesses can also be a strong base for securing finance. This can be as little as a single one off invoice, or the whole sales ledger. Invoice finance can release up to 90 per cent of your sales ledger and the highest level of funding for your business.
Finally, assets – whether existing or to be purchased – can provide the backbone of security for lending. The kind of assets that provide this security come in a range of shapes and sizes, from machinery, stock and property, all the way through to a company van. The key here is simply to understand the value of what you have.
For small businesses in the hospitality and retail sectors, such as pubs, hotels and shops, securing funding can be notoriously difficult.
What a lot of these businesses don’t realise, however, is that with just four months trading, and £4,000 of revenue coming through a card machine per month, they can secure funding under the promise of future cash flows. This can be up to 150 per cent of monthly takings and presents a useful funding opportunity to any smaller firm regularly using a card machine.
Startups find themselves in a unique position, but it needn’t be a desperate one. Most startups founders think that without a solid revenue stream, financing is going to be an uphill struggle. In reality, a solid business plan is far more important. The vital element is to ensure financial projections are both comprehensive and achievable.
The last point isn’t just crucial for startups. Solid financial projections are indispensable for any firm seeking finance, and speaking to a professional on the subject is certainly advisable. Your accountant is a great place to start, and will likely give valuable advice about your next steps to finance.
The moral of the story is that, no matter the business, there is almost always a hook to secure finance. The real issue comes in finding the lender that suits you, and an ever increasing number of small business lenders, it can often feel like the waters are being muddied. Aggregation platforms offer a way to clear these waters and make funding choices more transparent.
Paul Surtees is managing director and co-founder at Capitalise.com
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