A business may need finance before it makes its first sale: premises, equipment, stock, professional fees, marketing and wages can all require cash upfront.
Growth creates similar pressures. A profitable business can run short of money when it pays suppliers and staff before customers pay their invoices. Seasonal trading and stock requirements can widen that gap.
Define what the funding is for
Separate longer-term investment from short-term working capital. The funding arrangement should fit both the purpose and the period over which the business can afford repayments.
Prepare a forecast showing when money is needed, how much is required and what will provide the repayment. Test whether the plan still works if receipts arrive later than expected.
Prepare the proposal
A lender or investor needs a coherent picture of the business. Bring together:
- The experience of the management team.
- What the business sells, its market and competitors.
- Trading history where available.
- Marketing plans and the operational resources needed.
- Profit and cash-flow forecasts, including repayments.
- A break-even assessment and the main strengths, weaknesses, opportunities and threats.
- The amount sought, proposed term, other funding and any security offered.
A clear summary helps the reader understand the request. Be ready to explain the assumptions and answer questions about weaker areas of the plan.
Compare debt and asset finance
Overdrafts and loans: An overdraft can help with short-term fluctuations, while a loan provides funding under an agreed repayment arrangement. Check review conditions, fees and the circumstances in which the facility can change.
Secured borrowing: Security gives the lender rights over the named asset if the borrower defaults. A business purpose does not make a personal asset offered as security risk-free. Understand any personal guarantee before signing.
Hire purchase and leasing: These can spread the cost of equipment. Ownership, end-of-term choices and ongoing obligations depend on the agreement. Compare the complete cost and terms rather than just the monthly payment.
Trade credit: Supplier terms can help bridge the gap between buying and selling. Keep to the agreed terms and weigh any early-payment discount against the value of retaining cash.
Consider invoices and equity
Factoring and invoice discounting can release cash against unpaid invoices. Fees, control of collections and responsibility for unpaid debts vary. Our invoice-finance helpsheet explains the main distinctions.
Equity finance gives the funder an ownership interest rather than a straightforward right to loan repayment. An investor may bring experience and strategic support as well as money. Understand their role, influence and expectations before agreeing terms.
Grant support may be relevant to a particular project, but availability and conditions must be checked. Do not build a funding plan around an old programme name.
Keep the relationship informed
Once finance is in place, meet the agreed reporting and payment requirements. Tell the lender early if you expect a problem and explain what you are doing about it.
Obtain the final terms in writing and understand the costs, security and commitments involved. We can help prepare the financial information and compare how the alternatives affect your cash flow.