Using finance to grow a business

Using finance to grow a business

Traditionally, when your business was ready to move to the next level, you polished up your business plan, put on the smartest clothes you owned and stepped into your local branch to ask your bank manager for a loan.

Until recently, bank loans have been the main source of financial assistance for small and medium-sized businesses, and many still make the local branch their first port of call.

But in times of austerity, banks and building societies rapidly tighten the purse strings – and the criteria by which they’ll give money to businesses. Lending to small firms has continued to contract despite wave after wave of Government intervention, including quantitative easing, and the recent Funding for Lending scheme, in which the Bank of England gave a £16.5billion hand-out to lenders in order to kick-start the economy.

It’s a fact of life that many small business owners are now struggling to secure loans. Luckily, in response to this, more innovative funding options have become available, breathing some much needed new life into the small business sector.


Based on the idea that there is power in numbers, the crowdfunding movement continues to go from strength to strength both in the UK and abroad. Crowdfunding is mutually beneficial - businesses use it as a way of gaining much-needed funding while investors are able to make above-inflation returns. Services like Crowdcube and the newly launched Seedrs allow investors to back businesses they like, with anything from £10 upwards.

A social way of lending, crowdfunding allows investors to be more closely involved in the projects they are helping to finance. Typically, the money is raised via an online platform such as Kickstarter, where a minimum investment level is set by the company looking for capital.

Investors will get a proportion of the company’s profits as a reward for their involvement, and the company reaps the benefit of being able to access capital, often at lower interest rates than they would pay via traditional routes.

Angel investors

Angel investors are high net-worth individuals that provide finance in return for a stake in a business.

The amount a business angel is willing to lend will vary and can typically range from £10,000 to £250,000. This is a high-risk enterprise for the individual, so they may expect significant annual returns on their investment. That’s why it is so important to be very clear on the conditions before you make a final agreement.

Angel investors tend to be entrepreneurial by nature, so involving such an individual may provide you with some additional expertise as well as some extra capital. Think of it as a Dragon’s Den style investment, but without the ordeal of pitching your business on national television.

Private equity

Private equity can be another solution if you’re a small business looking for the finance to grow. This is where a firm provides working capital to a business to help it achieve goals such as product development, restructuring or general expansion. Private equity is an effective means of securing investment for a business that is not publicly listed on a stock exchange.

Private equity can be secured from either a single firm or several, although usually with a lead financier. When borrowing sums of money, shared private equity can make investing in your business more attractive as it allows firms to share in the growth of your company, as well as in the associated risks of expansion.

Asset-based lending

Asset-based lending is an increasingly popular choice for businesses looking to generate finance using their existing assets as collateral. Money is borrowed against assets based on the value of outstanding invoices, on property owned by the company, or even on finished products and stock.

This is an effective choice, as it keeps you firmly in control of your own finances and the amount that can be raised is flexible too – anything from £50,000 to £50 million.

Government schemes

For businesses that may have been turned down for a conventional loan in the past, the Government’s Enterprise Finance Guarantee is worth investigating. This is where the business applies to a lender for a loan, which is guaranteed by Government.

There are some criteria that must be met by the applicant business in order to be eligible and the lender must be satisfied that the business can afford the loan repayments.

The scheme is only available to UK businesses; they must have a turnover of less than £41 million, and the term of the loan must be between three months and 10 years, for an amount between £1,000 and £1 million.

Although the Government provides a guarantee on the loan to the lender, it is not involved in the decision as to whether or not to grant the loan.

The Government also says it wants to encourage private sector investment in small businesses through schemes such as the Start-Up Loan Scheme, the Business Finance Partnership and the Business Angel Co-Investment fund.

Bring your business ambitions to life

Access your working capital.

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