Finance

Finance is crucial for small and medium businesses and a lack of finance can often hold back an ambitious SME. We understand the challenges and opportunities when it comes to accessing the finance you need to grow your business in Cheshire and Warrington.

What are the most common types of finance?

No matter what stage your business is at there will often be a range of funding options available. The most common types of finance that are used by businesses are:

Debt Finance

The individual or business borrows a set amount sum of money (or an asset) and repays what they owe with interest over an agreed length of time.

Asset finance
Commercial mortgages
Invoice discounting
Loans
Overdrafts
Stock finance
Trade Finance/Credit

Advantages

Disadvantages

Can be cost-effective, especially if you are looking for short to medium term finance.
Repayments are a set amount on a set date, allowing you to plan your cashflow.
You retain control of all your business, unlike some other types of finance.

The debt must be repaid even if the business isn’t performing well and if not repaid in the agreed ways has the potential to lead to your assets being taken as payment.
It can be based on your personal credit rating as well as your business’ credit rating, which can make things more complex as one can be impacted by the other.
It can be more difficult to access debt finance if you have no business track record or have a bad credit history.

Equity Finance

Finance is given in exchange for part ownership (a stake) of your business.

This stake in your business can be by an individual investor or a group of investors.

Angel Investment
Venture capital
Corporate venture capital
Private equity
Equity crowdfunding
Initial public offering (IPO)
Expansion capital

Advantages

Disadvantages

The funding is committed to your business.
Your business doesn’t have to maintain payments for interest etc. like debt finance.
Some investors are likely to bring value through their skills, contacts and experience.
Investors are quite often prepared to consider providing further investment as the business grows.

Investors may expect a higher return on investment rate than the interest rates of debt finance.
Your investors will have some ownership of the business and may want to be part of the decision-making processes.
Finding the right investor and getting your business investment ready can be time-consuming and could require some finance to get the business investment-ready.
Your business may have to meet certain legal and regulatory obligations on reporting.
The ongoing relationship with an investor may need a certain time commitment from you to provide regular updates and information for the investor.

Grants and Government Funding

Finance is given in exchange for part ownership (a stake) of your business. This stake in your business can be by an individual investor or a group of investors. There are various Government funding schemes and grants available for businesses.

Some Government funding schemes are in the form of grants and don’t have to be repaid. Other types of Government funding may have to be repaid.

Various grants for specific sectors/projects/local areas
Government funding usually for specific sectors/areas too

Advantages

Disadvantages

Grants don’t have to be repaid.
Often accompanied by further guidance.
Clear repayment terms for finance that needs to be paid back. You retain control of all your business, unlike some other types of finance.

Your business will usually have to meet specific criteria.
Competitive process to access funding.
Usually high demand for this type of funding.

Start Up Finance

You may be able to access some form of small grant to start your business, but these are usually in high-demand and so are not available to a large number of start-ups.

Banks as well as The Start Up Loans Company may provide you as an individual with finance towards the cost of starting a business/running your business, if your business has been trading less than 3 years.

Start Up Loans
Start Up Grants

Advantages

Disadvantages

Often accompanied by further guidance.
Grants don’t have to be repaid.
Terms are tailored for start up businesses.
You retain control of all your business, unlike some other types of finance.

The debt must be repaid even if the business isn’t performing well and if not repaid in the agreed ways has the potential to lead to your assets being taken as payment.
It can be based on your personal credit rating.
Amount of start up finance available may be less than the amount of debt finance.

Reasons for needing finance

The number of reasons for needing finance for your business can be as different and varied as each individual business needed funding. We often help businesses access finance for:

Business growth finance
Business survival finance
Cashflow finance
Export finance
Innovation and R&D finance
Recruitment and training finance
Start up finance

It is important to be able to explain to any prospective lender/investor what the purpose of the funding is for, some key facts they will want to know are:

Why your business needs finance?
How the finance will be used?
How will you repay the finance? (If applicable)
What other financial options have you considered?
What your expectations are from them?

Deciding which type of finance is right for your business

Some factors to consider when considering what funding would be best suited to your business:

How much funding are you looking for?
What is the funding for?
What is your own/your business’ credit rating?
Are you prepared to offer part of your business to access finance?
Can you afford to make any necessary repayments?
How long will you need the finance for?

Once you are aware of the different types of finance and have an overall understanding= of what you are trying to achieve by accessing this finance, you can start considering which provider(s) of funding is most appropriate to you and your business.

The Growth Hub can help you by discussing in further detail the range of financial options available, to help you ensure you are fully aware of the choices available to you. (Please note the Growth Hub cannot offer financial advice but can help you develop your understanding and confidence in decisions relating to finance.)

Accessing and applying for finance

There are the traditional ways of accessing business funding, like your own bank or seeking investment from family and friends, The Growth Hub works with over 200 business support partners, meaning that we have a large network and vast knowledge of financial providers and sources of finance.

The expert team at the Growth Hub can also help you to prepare your business for applying for finance, this may include helping you look at ways to improve your firm’s credit rating or it may be introducing you to a funding provider you weren’t previously aware of.

Whatever you need finance and funding for, the Growth Hub can help you understand what options are available to you and which may be best suited to you and your business needs.

Contact the Growth Hub