Raising finance starts with understanding what the money is for, when it will be needed and how the business expects to repay it or provide a return to investors. The right route depends on the purpose, trading history, cash flow, available security and the owners’ willingness to share control.
This guide explains common options and questions to consider. It does not recommend a particular lender, investor or financial product.
Define the funding need
Write down the amount required and connect it to a specific purpose, such as buying equipment, funding stock, covering a temporary working-capital gap or investing in growth. Separate one-off costs from continuing commitments.
Prepare a cash-flow forecast based on when cash is expected to enter and leave the bank account. Include realistic timings for customer payments, tax, wages, rent, supplier bills, loan repayments and a contingency for delays or higher costs. Test a downside case as well as the expected case. The aim is to understand the largest likely cash shortfall and whether the business could still meet repayments if sales arrive later than planned.
The UK Government’s funding application guidance explains that funders may expect a business plan and cash-flow forecast alongside organised financial information.
Compare common funding options
No option is automatically best. Compare the total cost, flexibility, risk and effect on ownership.
Funds from the owners
Using retained profit or money contributed by the owners avoids an external lender’s interest and repayment terms. It also places the owners’ money at risk and may leave too little personal or business contingency. Record clearly whether money introduced by an owner is capital, a share subscription or a loan to the business.
Loans and overdrafts
A loan normally provides an agreed amount that is repaid over time. An overdraft can provide flexible short-term headroom, but the limit, price and availability are governed by its terms. For either option, compare:
- the interest basis and whether the rate can change;
- arrangement, legal, valuation, early-repayment and other fees;
- the repayment schedule and total amount repayable;
- financial conditions or reporting requirements;
- security over business assets; and
- any personal guarantee.
Government-backed business funding guidance notes that loans must be repaid with interest and charges, and that assets offered as security may be at risk if repayments are not maintained.
Asset finance
Hire purchase or leasing may spread the cost of vehicles, machinery or equipment. Check who owns the asset during and after the agreement, the deposit, payment schedule, maintenance obligations, end-of-term options and the cost of ending the agreement early. Compare the full agreement cost with buying the asset outright or using a conventional loan.
Invoice finance
Invoice finance can release part of the value of eligible unpaid invoices. Suitability depends on the quality of the sales ledger, customer payment patterns, fees, minimum terms and how collections are managed. The British Business Bank’s invoice-finance guide explains that providers normally charge for the facility and may require active administration and a minimum agreement period.
Grants
Grants are usually offered for a defined purpose and may be limited by location, sector, business stage or project type. Read the eligibility rules, permitted expenditure, match-funding conditions, reporting duties and payment timing before committing to a project. Search current schemes through the Government’s finance and support finder; do not build a plan around a grant until an award is confirmed in writing.
Equity finance
Equity finance provides money in exchange for an ownership interest rather than scheduled loan repayments. It dilutes the existing owners’ percentage interests and may give investors voting, information or consent rights. Agree how the business will be valued, what shares or rights are being issued, how future funding will work and how investors may eventually exit. Obtain legal and tax advice before issuing shares or entering an investment agreement.
Understand security and personal guarantees
A lender may ask for security over business assets or for an owner or director to give a personal guarantee. A guarantee can make the individual personally liable if the business cannot meet the guaranteed debt. It may put personal assets and finances at risk.
Read the guarantee separately from the main facility agreement. Establish the maximum liability, what triggers a demand, whether interest and enforcement costs are covered, whether liability is joint with another guarantor and how the guarantee can be released. The British Business Bank’s guide to personal guarantees recommends understanding the terms and seeking independent legal advice before committing.
Prepare the information a funder may request
Requirements vary, but a funder may ask for:
- a business plan explaining the offer, market, management and use of funds;
- historic accounts or recent management information;
- bank statements and details of existing borrowing;
- cash-flow, profit-and-loss and balance-sheet forecasts;
- assumptions supporting sales, pricing and costs;
- aged customer and supplier balances;
- information about assets offered as security;
- ownership and director details; and
- evidence of contracts, orders, licences or insurance relevant to the proposal.
Make the figures internally consistent. The amount requested, purpose, forecast cash flow and proposed repayment period should tell the same story. Clearly label assumptions rather than presenting estimates as confirmed orders or income.
Assess an offer before accepting it
Compare offers on more than the headline rate. Model every repayment and fee in the cash-flow forecast. Consider what happens if the funding arrives late, revenue falls, a major customer pays slowly or the business needs further finance before the agreement ends.
Read the full terms and ask questions about security, guarantees, financial conditions, default events, early repayment and the lender’s ability to change or withdraw a facility. For equity, understand the continuing effect on control, future profits and sale proceeds.
Practical next steps
- Define the amount, purpose and date the money is needed.
- Update the business plan and cash-flow forecast, including a downside case.
- Shortlist options that match the asset life or working-capital need.
- Gather financial records and supporting documents.
- Compare the full cost, risk, flexibility and ownership consequences.
- Obtain independent legal advice before giving security, signing a personal guarantee or issuing equity.
- Obtain accounting and tax advice where the structure or treatment of the funding is unclear.
If you would like help preparing financial information or considering the accounting and tax implications of a funding proposal, contact HA & CO. Product selection, regulated financial advice and legal review should be obtained from appropriately authorised or qualified advisers.