New businesses and indeed many successful businesses will often reach a point where they will likely need to seek external sources of finance in order to maximise their opportunities for growth.
Raising finance can be an important stepping stone for many businesses.
In this article we look at why now might be a good time to start raising finance, the current market opportunities and provide some raising finance advice on four different sources of finance – debt, equity, crowdfunding and grants – as well as looking at what you need to do in preparation for raising finance.
Is now a good time to start raising finance?
With the economic downturn now firmly behind us, there are a number of opportunities for businesses looking to raise finance. Whatever size of business you run, in whatever sector in which you operate, there should be funding opportunities available.
Liquidity in the market
Accessing finance is a major issue for many small and growing business, but with increasing liquidity in the market now might be a good time to start the raising finance process. Liquidity positions have continued to improve leading to funders (particularly banks) now having a strong desire to lend to quality businesses and at lower interest rates than have been seen for some time.
A willingness to invest
As well as a sustained upsurge in business confidence (fueling an increasing number of business acquisitions) we see the continuing rise in raising finance opportunities as further evidence of an increasing willingness to invest. The growing number of small-scale backers looking to invest through peer-to-peer lending and crowdfunding platforms is indicative of the current market. As well as these smaller funding opportunities, there is also a greater willingness to invest larger amounts of money, either from banks or private equity funds etc.
Raising finance through debt
The first port of call that most people think about when they are looking to raise finance is to ask their own bank. Banks are very active in this market, particularly now with growing liquidity and an increasing willingness to lend.
Beyond banks, there are a number of other debt finance opportunities including: specialist invoice finance, asset finance and cashflow lenders. Some of these sources of finance were at one time seen as being indicative of a struggling business, but are now also for those simply looking to grow and expand their offerings. If you are turned down by your bank then specialist funders such as these may be your next port of call.
There are an increasing number of debt finance providers available and we would be happy to discuss the opportunities with you.
Raising finance through equity
Equity financing is not as popular a source of finance as debt finance; almost 80% of finance raised comes from bank loans. However, with an increasing willingness to invest and growing support through initiatives from the government, equity finance can be very beneficial in helping businesses raise the finance they need to expand and grow.
An example of equity finance is through a venture capitalist; an investor who usually provides capital to startups and small businesses. Approaching venture capitalists (and business angels) for finance will usually mean an issue of new shares (i.e. raising capital through the sale of shares), therefore diluting an owner’s stake, but it can be a very good source of raising additional funds with some attractive features compared to debt.
Changes to the Venture Capital Trust (VCT) rules mean venture capitalists are now more focused on younger companies where the funds will be used for organic growth. However, there remains a substantial number of well capitalised private equity funds looking to invest in more mature businesses for a wider range of purposes.
If you would like to discuss equity finance in more detail please do get in touch.
Raising finance through crowdfunding
Crowdfunding has quickly gone from a quirky buzzword to a credible source of raising finance in recent years.
Crowdfunding platforms provide business owners (predominately start-ups and very small businesses) with the opportunity to effectively and efficiently reach out to a large number of potential backers. It can be a very fast way of injecting cash into a business. Crowdfunding has essentially turned traditional financing on its head, asking lots of investors for small amounts of money, rather than few investors for large amounts of money.
Crowdfunding involves pitching your idea or business to potential investors. Using the internet as their platform, businesses can create campaigns and reach out for funding. The investors may then provide funding for the business, in return for a predetermined return – which can either be debt, equity or even in return for a unique gift. An example of a unique gift might be early release access to products.
New crowdfunding or peer-to-peer platforms are being launched on a regular basis, offering access to debt and equity. These platforms typically have their own niche such as size of loan/investment, need for security or no early repayment fees. Whilst the cost of this finance tends to be greater than traditional providers, the speed and efficiency of these platforms compensates substantially.
A growing number of projects are crowdfunded every year and this is a source of finance we now take very seriously when determining the most suitable funding structure for a business. In the past couple of years we have submitted successful crowdfunding campaigns on behalf of clients and would be happy to discuss whether crowdfunding may or may not be an appropriate funding structure for you and your business.
Raising finance through grants
Grant funding is an excellent way to get a project up and running but, although there are many grant funding opportunities available, is a funding source that is extremely difficult to obtain.
As well as strong competition for grant funding, there are also usually a lot of detailed and complex qualifying conditions which the business has to meet.
The availability of grant funding also varies considerably depending on the sector in which you operate and location of the business. For example, there are a higher number of grants available for farmers and agricultural businesses than for retailers or solicitors. It is important you understand what types of grants are available for your business and what types of grants are not appropriate.
Over the past few years we have helped clients secure over £10m in grant funding, so this is an area we have a great deal of experience in. If you would like to discuss grants in more detail please do get in touch.
Raising finance advice on preparation
A key piece of raising finance advice is to seek professional help. Even though there is liquidity in the market, raising finance can be an intimidating and daunting process for many. It can also require a great deal of time and effort.
A successful raising finance campaign usual comes down to three things – the right opportunity, at the right time and in the right way. This is where we can help you; finding the right type of capital for you and your business, on the right terms.
Our services include:
- The preparation of a business plan and financial projections
- Determining the most suitable funding structure based on your business’ funding capacity
- Identifying and negotiating the most suitable funding
- Introductions to an appropriate selection of equity and debt finance sources
- Grant advice
- Expert comparisons of the finance offered to you
- Assistance during the financial due diligence investigations and legal process
Our strength lies in our experience and our excellent relationships with banks and other finance providers. We have a proven track-record in raising finance from a number of different sources, for businesses of all types and sizes.
We can help guide you through the whole process of raising finance, providing advice at every stage. Whether you need to raise finance to start a new business or for the expansion of an existing one, we are here to help you find the right type of capital, at the right price.
If you are thinking about raising finance please give me a call on 0114 266 7141 to arrange a free initial meeting.
Pete Wilmer heads up the firm's Corporate Finance service offering. Having worked in the corporate finance arena for many years with a national accountancy practice and with a major corporate bank, Pete has a wealth of experience and a track record of delivering first-class outcomes for clients. You can contact Pete at [email protected] or 0114 266 7141. [/author_info]