Those who read our post yesterday will be aware of the journey of a gentleman from Ohio called Zack Brown who is raising money through crowd funding to make a potato salad.
At the time of writing yesterday’s post, the total amount raised stood at $44,102. Overnight this amount has now jumped up to $46,053 and Mr. Brown’s potato salad is clearly causing a bit of a stir on the world wide web.
However entertaining this is though, for us it did raise the issue of how businesses raise funding for their ventures. Yesterday we looked at options such as bank funding, the Enterprise Finance Guarantee scheme, crowd funding and secondary tier lenders, and today we look at a few more…
Invoice discounting & factoring
A very common form of business finance is invoice discounting or factoring which are facilities linked to and secured upon the book debts of your company.
This is often an alternative to an overdraft facility and there is a wide selection of providers (including many of the high street banks) with whom we work.
The flexible nature of this funding allows a company to draw down the majority (up to 90%) of sales invoices on the day that they are issued. This allows the facility to ebb and flow with your business cycles allowing for maximum funding during in your busiest periods.
Asset finance is really just an extension of invoice discounting widened to include funding for assets other than a company’s debtor book.
Typical areas which may be funded via this means include plant and machinery and even stock.
This type of funding is not just restricted to new purchases as security may be taken on a company’s existing plant to release much needed cash.
Where bank or other funding is proving difficult to obtain, selling equity in the company to an individual (Angel investor or Venture Capitalist) or to an investment fund can be a viable alternative.
Whilst the obvious downside here is a dilution in ownership and control, a huge upside can be the knowledge and experience brought to the party by an investor.
This type of investor will often look to exit within a period of 3 to 5 years typically which will give the business owner the chance of selling their stake too or re-purchasing the investor’s stake using the cash flows and balance sheet of the company to fund a deal.
Whilst not as prevalent as in the past, there is still some grant funding available to companies fitting the relevant criteria.
Conditions of grant funding often fall around the requirement to create or preserve jobs in the area and your accountant should be able to advise if any qualifying funding exists in this area for your business.
Certain funds are available that will offer an interest free loan to companies to the value of other external investment or finance raised.
This can prove hugely beneficial when used in conjunction with the other routes to finance mentioned throughout this publication.