Funding business growth

David Wright, Investment Manager - Greater Manchester Loan Fund

Despite positive signs of economic recovery, SME’s across the region require increased support and flexible investment in order to grow. There are a growing number of products in the market place, so if you’re looking to raise money, there are currently more alternatives than ever before. For a business owner this evolving market may prove daunting, therefore obtaining good advice to locate the right funder and ensure the business is investment ready is vital when funding the growth of your business.

1) Do your homework
Before putting pen to paper on your business plan, it’s worthwhile doing some background research on your market and the opportunities it presents. You need to demonstrate that your business has the potential to make sales and generate cash. When analysing your market ask yourself

  • Is your market growing and is there real potential for growth, if so, when and by how much?
  • How will your business achieve this growth?
  • Understand the market size and how much you can sensibly secure?
  • Who are your competitors, and how are you going to compete?

2) Create a Business Plan
Prospective funders will want to see a plan that is realistic, accurate with a strong attention to detail. Your first plan will evidence what happens to the business should it achieve its objectives, but some of the best plans we see also incorporate some provisions for failure, funders love to see a ‘Plan B’. Also keep it simple; not everyone understands the terminology of your industry. We receive lots of plans where having read the document you are still have no idea what the business does. It’s worthwhile asking a friend who is not involved in the business to read the report and offer their thoughts.

3) Create a solid set of forecasts
When pulling together your forecasts ensure the assumptions are realistic, make some provision for failure as well as success. For example, if you’re recruiting sales staff not all your new recruits will be star performers. Also if your business is yet to invest in a full time finance function look to appoint an advisor who will help you become investment ready, ensuring your forecasts can stand up to a diligence process.

4) Understand your options
Securing funding in today's market can be a complex task that requires time and an understanding of the various options available to your business. Media reports are dominated by a lack of available funding for SMEs, but there are plenty of alternative finance providers, it’s just a case of identifying the right one. The Greater Manchester Loan Fund is one such option that provides flexible funding solutions to promising businesses that need help to raise finance as a result of tighter lending criteria. There are also a number of public sector backed advisors such as Access to Finance that offer free impartial advice helping you connect with funders (www.a2fnw.co.uk)

5) Banks
A call to your Bank is normally the first port of call for many businesses seeking finance. Despite everyone having an opinion as to whether Banks are lending, it seems they are willing to support the ‘right’ opportunities, but what is now deemed ‘right’ has changed significantly as a result of the past 7-8 years. So if the answer you receive from your bank is a ‘no’ don’t give up, there are more options available.

6) Asset Finance
If you’re looking to fund the purchase of new assets you may want to explore asset finance packages, hire purchase and leasing. This allows a business to breakdown the payments into monthly affordable chunks, making a large capital investment more affordable, removing that one off hit to the cash flow. Also if you’re looking to purchase an asset but lack the necessary deposit, it’s worth taking a look at the Assisted Asset Purchase Scheme. There’s a chance your business may qualify for a grant of up to 20% of the asset value.

7) Invoice Discounting
Factoring and Invoice Discounters offer funding that can assist your businesses in unlocking cash from unpaid invoices. There have been numerous new entrants to this market over the past 5 years so it’s important to test the market. When speaking to prospective funders some of the key points you’ll need to understand are the % advance, total funding line, any restricted debtors, what are the fees / Charges and what are the security requirements. There is a lot to consider so again it’s worth seeking advice.

8) Engage with advisors
Don’t try to do everything yourself especially if your business has a limited finance function. There are a host of advisors who will ensure you are investment ready before connecting you with the right funders. You will have to invest a considerable amount of time throughout the fund raising process, time which can be put to better use running your business. Whilst some advisors will charge, the real cost to business can be reduced by investing and achieving a slicker quicker funding process.

9) Maintain dialogue
Throughout the funding process it is important all parties keep in touch. Funders tend not to appreciate surprises. If you have a problem bring it to their attention early, this means you’re able to work together to find a solution. If the news gets stored until later in the day, it can become an ultimatum and there is a high chance the funder will walk away.

10) Shop around
Don’t automatically accept the first offer, shop around, especially if you believe there is a chance to improve the terms of a deal. You may achieve improved pricing or agree a finance package without the need to provide a personal guarantee as collateral. However you need to strike a balance, agree with funders a timescale for a response, generally if they want to do a deal they’ll deliver on time, if not you can be left waiting for a decision. Be prepared to walk away, delays could be the reason you miss the growth opportunity.


First published in SME Club, part of Pro Manchester.

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