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Help your firm to find funding


By Adam Tavener, Chairman of Clifton Asset Management and Alternative Business Funding

Many small businesses will need finance at some point in their growth cycle, either early on to get established, or possibly later, as they strive to move to another level.

Whilst there are now more options than ever before all jostling to attract the attention of finance hungry SMEs, it remains true that solid preparation and planning will provide you with the best chance of success and, crucially, a competitive situation where several funders are keen to attract your business.

The first part of the process is to dispassionately analyse how much finance you need, and the purpose of it. ‘What do you need the money for’ is one of the key questions asked by virtually all lenders. Key to your answer must be the ability to evidence, preferably within a business plan, that the finance will achieve its purpose and will generate sufficient revenues to ensure that the lender is repaid. Vagueness in this area will severely affect your chance of success.

You also need to evidence your track record. Have you borrowed and repaid previously? Does your business have a history of profitability and a good credit rating? If the answer to these questions is no, it’s not the end of the world; you just need to spend some time clearly explaining the circumstances and remedies that you expect to deploy in order to turn things round. Again, at this point vagueness is a help to no one. 

Crucially, if security is available, this will have a big influence both in terms of funder appetite and appropriateness. Many lenders specialise in financing against fixed assets, many more will look to your receivables, if you have any, to underpin their loan. For smaller businesses without many assets a personal guarantee will almost always be required, and an unwillingness to provide such a guarantee will severely restrict the number of potential funding sources.

It is also worth bearing in mind that your bank is no longer the only, or, indeed, first choice of lender. The banking crisis of ten years ago led to an explosion of new SME lending products emerging, from pension-led funding (using your own accumulated pension pot to finance your business) to peer-to-peer (borrowing through a website that introduces private lenders to business borrowers by pooling the lenders’ money together), and also various niche funders such as merchant cash advances (borrowing against anticipated future credit card receipts).

The point has been made, repeatedly, that this can all be a bit bewildering and, indeed, the government agrees. That is why they have designated a small number (three) of websites which aggregate a large number of mainstream and alternative lenders in one place to allow SMEs to find and compare alternative business funding in one safe and impartial place, saving much time and risk.  

This is often the best starting point in your journey to securing finance as a good site will, after a surprisingly small number of questions, give you a quick and accurate view of how many, and what type of funders are keen to lend to you, and how suitable their products are for your needs. Since not all such sites are completely unbiased it is probably best to stick to the Treasury designated platforms, details of which can be found on the British Business Bank website.  

Finally, don’t be discouraged if you get a couple of early ‘No’s’. Running a small business takes commitment and perseverance and the same is true of securing finance, so stick with it.