Factoring Trade Finance: Alternative Sources of Business Growth Finance: There Is More Than One Way to Fund Growth


Alternative Sources of Business Growth Finance: There Is More Than One Way to Fund Growth

Talk to any business owner or read the business section of any newspaper and you might find stories of struggling to access enough money to grow or maintain their business. But we are beginning to witness a change in how many business owners access finance now actively seeking alternative sources.

A survey conducted by the UK Private Business Forum found that 26% of businesses are looking for alternative financial products, with 21% looking for them outside traditional High Street lenders. In fact, in another survey conducted by the Federation of Small Businesses, it was found that only 35% of respondents used traditional overdraft facilities in 2011.

So if banks are constantly reluctant to lend to all but the lowest risk business, how can the rest of the UK business population finance growth? Here are some alternative sources of finance that are increasingly popular to investigate.

Alternative Sources of Business Growth Finance
Alternative Sources of Business Growth Finance

Better Working Capital Management

This may seem a strange financial source, but very often businesses sit in undiscovered cash reserves that can be used to finance growth. A report released by Deloitte in 2011 revealed that the largest business in the UK used 60 billion pounds of unproductive working capital. Inefficiencies in how working capital (debtors, shares, and creditors) are handled can bind your money unnecessarily. Cash can be opened and released back into the system so that it allows a self-financed growth plan that takes into account credit procedures, how credit requirements are given and how extraordinary payments are pursued.

Ensuring that stocks are stored at optimal levels through better inventory management is another area where cash can be spent to support and finance growth. Take a good look at your inventory management process and identify areas where cash is trapped.

Good working capital management is not only about better control of debtors and shares, but also about maximizing the requirements provided by creditors. Do you want to maintain a first-class relationship with your supplier by paying long before the due date? You can positively influence the position of your cash by taking full advantage of the requirements offered by your supplier. Have you made full use of your position by looking for broad requirements from say 30 days to 45 days?

Being more efficient in the way managed working capital can spend sufficient funds for self-financing growth plans.

Alternative Sources of Business Growth Finance
Internal Sources of Finance

Personal Resources

In the traditional way of funding, it becomes more difficult to access business owners now looking for their personal resources to fund growth. Whether it's using cash savings, using a personal credit card or taking an additional mortgage on the residential property, these sources are instant solutions. A survey by the Federation of Small Businesses found that 33% of respondents had used their savings to fund growth. Besides being more easily accessed by using personal resources, it is often a cheaper financial source.

Family and friends

Sometimes referred to as three F - family, friends, and fools - this can be a less stressful way to increase finance. In some ways, it can, but it can also be a journey full of danger. Make use of their private network of business owners financial resources by looking for loans and offers to pay higher interest rates than those offered on High Street savings accounts, or offer a piece of equity in the business in return for the investment.

Improving finance in this way can be relatively easy because demand and fulfillment are based on personal trust. Usually, the Business Plan will be presented by highlighting investment opportunities and risks, but ultimately success will reach the depth of the relationship and level of trust.

The danger in raising funds in this way is that the nature of the relationship will change from person to business transactions. Failure to pay regularly according to agreed conditions, or even total failure to pay, can damage relationships that cannot be repaired carefully.

Asset Finance

The Asset Finance Industry is based on the concept of either saving money or speeding up access to it. Asset financing, which consists of invoice discounts, factoring, and asset purchase funding, has been available as a financial source for years but only now has gotten more recognition. Figures issued by the Asset Based Finance Association, a trade association representing the industry, show that up to the third quarter of 2011 the amount financed by Association members increased by 9% compared to the same period the previous year. While the increase may not seem significant, this is contrary to the background of the decline in traditional bank loans.

In a world where capital assets 'cash is king' help save cash by financing the purchase of assets such as vehicles, machinery, and equipment. Because investors seek basic assets as collateral, there is usually no requirement for additional collateral. According to the Asset Finance and Leasing Association, one in three businesses in the UK that have external finance now use asset financing.

Asset investors can help speed up the flow of cash in the business by allowing faster access to cash tied to debtor books. Discount facilities and invoice factoring give companies the ability to immediately access up to 80% of invoices instead of waiting for agreed credit terms to run their programs. Such financial facilities will accelerate cash turnover in business, allowing businesses to fund high growth rates.

New players such as Market Invoices enter the market to allow businesses to increase finance against selected invoices. Utilizing high-value individuals and funding Market Invoices act as auction houses with funders 'offers' to go up against certain invoices.

Alternative Sources of Business Growth Finance
Governance and how Islamic finance development

Crowdfunding and Peer-to-Peer

A relatively new phenomenon is the concept of increasing finance by utilizing the power of the crowd. The low-interest rates paid on savings have historically caused savers to look for new ways to increase their returns. With business owners struggling to get the funds they need, it's only natural that a market will be created to unite the two parties.

CrowdCube entered the market in 2010 to match private investors who want to become dragons with businesses that want to raise capital. After a business passes the initial review stage, their proposal is posted on the site and potential investors show the level of investment they want to do with a minimum amount as low as £ 10.

Businesses that are looking for more traditional loans must consider the Funding Circle. Founded in 2010, Circle Funding is also suitable for individual investors who are looking for better returns with businesses seeking additional funds. Businesses can apply for funds between £ 5,000 and £ 250,000 for a period of 1, 3 or 5 years. At a minimum, a business must have submitted a two-year account with House House and assessed to achieve a risk rating that guides potential investors.

When the concept of crowdsourcing starts to mature, we tend to see more players entering this market to take advantage of the need for better investor returns and easier access to business finance.

Alternative Sources of Business Growth Finance
Venture capital funds as an alternative financing source

There Is More Than One Way to Fund Growth

Accessing finance to fund a growth plan does not have to be difficult if you are ready to look for alternative providers. Funding growth is no longer the exclusive property of traditional High Street banks and it is now the responsibility of business owners to find alternative routes.

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