Growing your business requires significant financial investment. Choosing the right funding option will directly impact your ability to invest in growth and capitalise on opportunities, ultimately affecting your long-term success.
Each option has inherent risks, benefits, and eligibility criteria that you must evaluate, which we’ll cover in this guide.
Understanding Your Funding Needs and Financial Goals
Before you apply for investment, you should assess your current financial position and long-term goals. You need to present a clear understanding of why you are asking for financing, including what it will be used for and how you will pay it back.
There are two main types of funding you may need: short-term day-to-day operational support and long-term provision for growth and development. Short-term finance is suitable for plugging cashflow gaps with a quick injection of money or stabilising your business. Long-term financing is more suited to funding better equipment or hiring more people.
Your plan should identify which costs you currently need and project for future funding needs. Now is also the time to consider the best funding mix for your business.
Business Loans: Types, Requirements, and Best Options
Business loans are designed for commercial organisations. You’ll pay them back with interest at a fixed or variable rate over a set timeframe, usually 25 years. They can fund anything you need to pay for in your business, like new premises or marketing.
Business loans are generally secured or unsecured. With secured loans, you offer something you own, like property or stocks, as security. If you can’t repay the loan, your lender can sell these assets to get their money back. Secured loans let you borrow more and usually have lower interest rates.
You won’t provide security for an unsecured loan, so your assets aren’t at risk. However, you will need to give a personal guarantee that you’ll personally repay the loan if your business can’t. Unsecured loans are easier to access but generally provide smaller loan amounts with higher interest rates than secured loans.
Attracting Investors: What They Look for in a Growing Business
Your business must demonstrate long-term potential to secure investors. The key is targeting those likely to be interested in your product and service, so research potential investors to understand their backgrounds and prudent investments to ensure they’re a good match.
Angel investors may be perfect if you’re an early-stage local business. In contrast, venture capitalists will be more interested if you have a track record of success and rapid growth potential.
Networking will allow you to build the relationships that lead to this investment. British Private Equity & Venture Capital Association and the UK Business Angels Association (UKBAA) frequently run events that unite founders and investors.
Government and Private Grants: How to Find and Apply for Them
Unlike loans, you don’t have to repay grants or give away a share of your business to access them. The government or a private organisation can provide grants for a specific purpose, like training or research and development.
Typically, grant awards amount to a few thousand pounds, so they’ll need to be supplemented by other funding. However, they can sometimes be awarded for hundreds of thousands of pounds.
To apply for grants, use the government’s business finance support finder. You can search for grants based on business activity, location, and size. You can also check with your Local Growth Hub to find grants in your area.
Balancing Debt, Equity, and Grants for Sustainable Growth
Aim to secure low-interest debt to balance these funding sources and retain a healthy debt-to-equity ratio. Mixed with grants, this will take some of the pressure off repayment and prevent over-leveraging or losing too much control.
Your tax and legal obligations will grow with your business. Hiring assurance, tax, and consulting experts will help you ensure that you are meeting International Financial Reporting Standards and domestic tax laws.
