Raising Capital For Your Business: What Are Your Options?

It is often necessary for businesses of all sizes to raise capital. The need for ready money can be for any number of reasons: a new product, a launch into a new market, to fund a potentially lucrative future project, or any of the myriad of reasons where a business can benefit from additional investment.

Indeed, for the vast majority of businesses, it is impossible to make large-scale plans for growth without the possibility of generating investment. All companies would like to be in a position to fund their growth via their success, but typically most of the day-to-day cash flow is tied up. So, even if you are running a profitable business it is not always easy to get your hands on the extra cash when you need it. 

Of course, in other situations, it may be that a lack of cash flow is actually holding the business back and that an injection of extra funds could help to stabilise finances. And, just as there are a number of reasons that you might need to raise capital, there is a multitude of options when it comes to raising funds. In this article, we take a look at some of the ways companies can build up their cash reserves. 

Assessing the funding options

Businesses have a lot of potential options to choose between when raising money, however, in general, most fall into type fundamental categories: borrowing money that you will pay back later, or selling shares in the company.

This is oversimplifying the issue and, in both cases, there is a very varied range of possibilities and choosing the right one can depend on a number of factors: 

  • How much capital you need to raise
  • The size of your business
  • What the money is needed for
  • How much control you want to keep

Below we will discuss the main options available to you, including examining what could work best in your specific circumstances. 

Borrowing money

In many ways, borrowing money is the simpler of the two categories of raising capital. You will receive the money you need and then you will need to pay back that money over a fixed period, and usually with a rate of interest. Some of the money borrowing options include:

Borrowing from friends and family

This won’t be the right choice for everyone, however, if your business is small and the cash injection that you need isn’t too significant, you may find that you can actually simply borrow the money from friends and family. This kind of casual arrangement will generally be cheaper for you, as those close to you may not charge you interest. 

Of course, it is important to weigh up very carefully whether you want to risk the money of your friends and family. If you find yourself in a position where you can’t pay it back, it can have a negative effect on your personal life as well as your professional life.

Bank loans

Perhaps the most traditional way of raising funds, bank loans can be a quick and effective way to get the money you need. The majority of high street banks offer loans to businesses, and these can be anywhere from £1,000 to £50,000. 

As with any bank loan, you will need to prove that you will be able to pay the loan back, which will generally involve having a high-quality business plan. Let the bank know about any assets you are going to be purchasing with the money, as this can strengthen the application. 

Peer-to-peer finance

Becoming more popular, peer-to-peer (P2P) finance involves matching up a number of smaller-scale investors with small businesses. Your business applies for a loan of between £1,000 and £1 million, and the money is drawn from a pool of investors. This type of funding is typically easier to apply for than a bank loan.

Invoice finance

One other option, known as invoice finance, is a business lending model that companies will use as a way of resolving their cash flow issues. Invoice finance enables companies to raise funds required by borrowing money against issues they have already issued. 

Selling shares in your business

The other major option is selling shares in your business to get the money you need. There are actually many ways to go about this, so let’s take a look at which option might be right for you. 

SEIS

Seed Enterprise Investment Scheme (SEIS) is a government scheme that encourages investors to put money into smaller businesses. It does this by providing an income tax break to individual investors buying SEIS-qualified shares.

Investors can claim against income tax or capital gains tax, and the companies can get up to £150,000 worth of investment via SEIS shares – so this can be a win-win for investors and businesses. 

Angel investors

Angel investors are usually high-net-worth individuals looking to make investments in businesses. They can offer significant amounts of money and this will generally be in return for a large portion of the business. An angel investor may be interested in making decisions about the direction of the business, so a big part of getting this investment can be finding the right individual to work with. 

About the author: Annie Button is a professional content writer and branding aficionado.

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