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Tangled Up in Unpaid Invoices? Here’s How Invoice Factoring Can Help Your Small Business

Unpaid invoices routinely hurt small businesses. Invoice factoring can be a good way of sorting out invoicing tangles and putting your cashflow in order.

In today’s economy, there really aren’t many better ways of balancing financial stability and job satisfaction than running your own business. A cursory look at the stats should be enough to put this idea into perspective. The ‘entrepreneurship bug’ has already bitten hundreds of thousands of first-time business owners in the UK, and many more are expected to join their ranks.

This is definitely a good sign for the overall economy. But there’s always a downside to such ambitious visions. Running a business is not an easy task. You may need to spend every bit of your savings and many years of your life before you see the idea succeed. The motive behind this post is not to discourage – it’s to educate.

While there are numerous hurdles along the way, we will be discussing a common problem that runs across the board – that of getting paid. We will also try to take a look at how invoice factoring can help address these issues for small businesses.

Good Job on Attracting Customers – But Have You Been Paid Yet?

If your business is young and you’re still starting up, this isn’t a problem you are likely to be familiar with. It, however, is one that you should know more about.

We come across dozens of businesses every month that focus solely on growing the business, without making sure that the work is ‘realised’. The idea of ‘realisation’ of work is straight out of accounting books. The ‘notional’ profits are exactly what they say they are – mere notions. Businesses work hard to sell their services and products, but it’s all for nothing until your bank has confirmed the incoming payment.

This is why your job does not end at sending an invoice. You need to see to it that the customer receives it, approves it and – most importantly – pays it. It’s a rather annoying task, but this is the top line of every business and hence, cannot be ignored.

The Curious Case of Small Business Invoicing

The invoicing problems plague businesses that are not directly consumer facing. The consumer facing businesses seem to get off the hook in this sense – but they have their own billing problems to look after. As far as invoice factoring goes, we will restrict ourselves to discussing small businesses of the non-consumer-facing variety. These primarily include B2Bs and trade businesses.

If you have ever run a business previously or you know how things work for B2Bs, you wouldn’t be surprised to hear this. The waiting time for invoices to get settled is so excruciatingly high that it almost always forces the business to borrow on credit. This, in turn, exhausts their borrowing capacity, leaving them pinned against the wall should the need arise to invest in marketing, growth or research.

Here’s an interesting analysis that sheds some light on this problem.

Invoice Factoring

Comparison of average waiting time for invoice payment by annual turnover for UK businesses – 2016-17 (Courtesy: Statista)

The average waiting time before the invoices are paid stands at around 45 days for all UK businesses. What this means is that every business needs to be able to have enough cash reserves for at least one and a half month to operate normally.

Now, take a look at this number for small businesses (annual turnover less than £5m) – it comes out to be around 62 days. For businesses that turn over less than £1m annually, it further jumps to an astonishingly high 71 days. If you operate in this range, your business needs to have cash reserves for two and a half months.

This, quite obviously, isn’t easy, especially for young businesses.

Failing to see their hard-earned money arrive in their bank accounts on time, these businesses are left no choice but to default on ongoing instalments and mortgages, defer staff salaries and borrow more money than they really need to. This curious case of not getting paid takes an enormous toll on SMEs in the UK. Forbes reports that nearly 1 in 3 SME invoices remains unpaid two weeks beyond the due date, and more than 60% of SME invoices are never settled on time.

What, in such times, should a small business strapped for cash do? Where can and will the next paycheque for the staff come from?

It’s a serious issue – but definitely not one without a reasonable way out. Invoice factoring is a tailor-made solution to common invoicing bottlenecks faced by small businesses.

What Is Invoice Factoring?

Invoice factoring is a type of invoice finance. It’s a commercial finance product that allows businesses to liquidate unpaid invoices with the help of an external lender (the factor).

“Invoice factoring is used around the world by businesses of all sizes. While big businesses and corporations can broker customised deals with banks, the real value of invoice factoring comes to the fore for small businesses that don’t have easy access to credit.”

To understand how invoice factoring works, we need to understand how a typical business goes around invoicing their customers and clients. The process involves four steps:

1. Generation
The business needs to generate the invoice as per standard business practices. The terms of invoice are pre-decided between the two parties involved. In the UK, it’s customary for small businesses to operate on a 30-day invoicing window – the client will be required to pay the invoice amount within this time frame.

2. Dispatch
The generated invoice is dispatched to the client.

3. Approval
The client receives, assesses and approves the invoice (in principle). The approval should ideally come immediately upon receipt, and much before the actual payment.

Remember – if your invoices aren’t subject to invoicing windows, the client may not necessarily have to follow this step. If you don’t have the client’s approval, it will be difficult to factor the invoices.

4. Payment
The client settles the invoices within the invoicing window as per their convenience.

Where Does the Problem Lie?

The problem usually lies between the third and the fourth step.

  • Long Waiting Times

There are times when a business has to agree to invoicing windows that are in favour of the client. This is a common ‘closing’ tactic that allows businesses to snag more customers. The downside is that the invoices stay unpaid for weeks – if not months.

  • The Client Doesn’t Pay on Time

We have already seen how it’s very common for small businesses to have to deal with clients that fail to pay on time. This means that the services you have offered actually depreciate in value – an unfortunate thing.

How Invoice Factoring Works

Invoice factoring aims to address both these problems in one go. Here’s how it works:

  • You compile the unpaid invoices in your sales ledger into two categories – approved and pending approval. Lenders are usually not too keen on buying unapproved invoices unless you have a strong business history with that particular client.
  • You ‘outsource’ the collection of approved invoices in bulk to the lender.
  • Once the paperwork goes through, you receive a cash credit equivalent to the factored invoice amount (minus the lender’s fees).
  • The lender assumes the responsibility of collecting the payment from the client, and your business receives the much-needed liquid cash.

The Advantage of Invoice Factoring for Small Businesses

Being a leading whole of market finance broker, we – at Commercial Finance Network – have seen the impact a good invoice finance deal can have on small businesses. Here are the advantages that invoice factoring brings to the table:

Easy Access to Cash

Cash – no matter how things change – is the lifeblood of small businesses. If you don’t have enough liquidity in your business accounts, it’s nearly impossible to carry out day-to-day operations. With the help of invoice factoring, small businesses can add extra liquidity to their books, eliminating the need to borrow each month.

Flexible Amounts

Other commercial finance products are not as flexible as invoice factoring. With invoice factoring, you decide how much you wish to borrow and at what cost. It’s relatively easier to find a lender who’s willing to accept your terms, given that you work with an experienced invoice finance broker like Commercial Finance Network.

No Repayments

The best part is you don’t have to worry about making monthly repayments. When you factor your invoices, you essentially sell them to the lender. This makes invoice factoring more of a B2B transaction than a commercial loan.

Relatively Cheaper

Invoice factoring is usually much cheaper than a comparable business loan. Since the risks associated with approved invoices are usually on the lower side, lenders can afford to pass the savings on to you. This results in lower fees and more quotes to choose from.

Focus on What You Do the Best

Small businesses have their plates full. Administrative tasks – from bookkeeping to taxes and HR to PR – routinely take your focus off the main goal – growing the business. ICAS estimates that small businesses, on an average, lose one work day every week in managing admin tasks.

Unpaid invoices only add to this never-ending stream of tasks. By factoring invoices, you have one less thing to worry about. Submit the deliverables, get the invoices approved and move on to the next big thing!

Less Burden on the Collection Infrastructure

Small businesses usually don’t have a dedicated team for collections or receivables. Factoring invoices significantly reduces the burden on the personnel who are responsible for ‘chasing’ the clients for money.

Many Lenders Offer Bad Debt Protection

Running a business means coming across all sorts of people. There are bound to be unsavoury experiences and the proverbial ‘bad apples’ that just refuse to pay. You can add a bad debt protection feature to your invoice factoring agreement to safeguard your business from such instances.

Nothing is Perfect. Invoice Factoring Too Has Its Downsides.

Make these considerations before you get into any invoice factoring deal:

Is the Lender Trustworthy?

When you factor invoices, you essentially invite the involvement of a third-party into your business operations. This is one reason that puts many small businesses off. That said – as long as you work with a reliable and reputable lender and broker, there should be little to worry about.

What About the Clients? What Will They Think?

This is a common and very valid apprehension.

It’s also a reason why you should never work with lenders who don’t have a demonstrable factoring experience. You don’t want your clients having to deal with pestering, unprofessional and – worst of all – unethical collectors. A good way around this problem is to use confidential invoice factoring services.

Should You Just Borrow Instead?

It’s entirely up to you and the situation you find yourself in.

Invoice factoring is a faster process than conventional loans and alternative finance products. If you can afford to have a loan on your books each month or quarter, there’s no reason not to go that way. Invoice factoring is best seen as a permanent fix to all invoicing problems, and not as a primary source of capital for a business.

Invoicing Problems Are Common. How You Deal with Them Is What Matters.

You can either choose to get bogged down under the weight of unrealised revenue, or you can leverage the unpaid invoices to your benefit. It all depends on the health of your business, your relationships with your clients and your access to credit.

At Commercial Finance Network, we help you choose from multiple invoice finance offers from the most reputed, experienced and responsible lenders across the UK. Having grown our business from the ground-up, we know exactly how important this is to you.

Don’t let unpaid invoices hurt the top line revenue. Contact us today to request a free, no-obligation invoice finance quote today!

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Government Grants for SMEs in the UK – A Hands-on Guide

Winning a government grant can be a real boon for SMEs looking for funding, technology or expertise. In this post, we will discuss everything an SME needs to know about such grants.

Running a successful business is all about pre-empting, overcoming – and, at times – walking around hurdles. These hurdles come in every shape and size you can think of – from HR and compliance to marketing and branding. But if there’s one common denominator among all the problems businesses face, it has to be the money.

Take funding, for example. SMEs around the world and across the board are known to struggle when it comes to raising money. SMEs in the UK are no exceptions to this. In fact, so difficult is raising money via traditional, mainstream and high-street lenders that SMEs have gradually started thinking beyond banks and towards alternative funding channels.

In such times, the role played by the government becomes more crucial than ever. Government grants are, without a doubt, the face of this role. This is the reason why understanding how these grants work and how your SME can give itself a good shot at winning one are important. In this post, we will try to cover what government grants for SMEs are, how they work and how to find and apply for a grant that is suitable for your business.

What is a Government Grant?

A government grant is essentially an incentive package made available by various government bodies and organisations to individuals as well as businesses. Government grants (barring the finance grants) are usually non-repayable.

Depending upon the nature of the grant body and the grant objective, these grants can come in a variety of sizes and formats. As far as small businesses are concerned, such grants range from £1,000 to £500,000. Some of the bigger and more prized grants can go even higher.

Why Are Grants Given to SMEs?

Government grants have been there for a long, long time. The names and forms they have taken may have changed over time – from business subsidies to business support – but the objectives haven’t. If you were to analyse government grants across business sectors and districts, two things become very clear:

  • Most government grants have a singular objective – to keep the economy growing. This objective takes many avatars such as employment generation, sectoral development, regional development and so on. Grants that have these objectives are more or less permanent fixtures.
  • Other grants aim to follow, aid and complement ongoing policies of the government. Such grants typically reflect the incumbent government’s views in regard with trade, environment, social welfare, technology etc.

To put things in a more sweeping perspective, we can say that government grants have three clear objectives:

  • Boost economy through regional and local development
  • Generate employment by supporting businesses
  • Create an economic environment that encourages innovation, entrepreneurship and ‘home-grown’ research

As of 2018, nearly 200 government grants are available for SMEs in the UK.

Why SMEs Should Take Government Grants More Seriously

Even though government grants are incredibly appealing, very few SMEs actually realise the potential of such grants. Here are some features of government grants that SMEs can’t afford to overlook:

Government Grants Are Diverse

Very specific grants are available across all business sectors. This allows SMEs to compete more fairly for similar grants.

Grants Are More Than Just Money

As we will discuss in the next part of this post, government grants offer much more than just money.

Winning a Grant Validates Your Business Idea

A large number of SMEs are stuck in the validation loop that stops them from expanding or trading more confidently. Inadequate funding makes matters even worse. A grant can be a good way to turn the corner in such times and receive external recognition and validation.

Government Grants: Shortcomings & Drawbacks

While the features associated with government grants are certainly attractive, there exist shortcomings and drawbacks you should be aware of:

The Competition Is Fierce

The competition for government grants is fierce to say the least. Since young businesses, start-ups and established businesses all tend to spill over into the space that’s reserved for SMEs, the competition can become entirely off-putting.

It Can Take Months Before You See the Money

Applying for a government grant isn’t always the smoothest of processes. It can take many months for the assessment process to conclude, making grants irrelevant for businesses that require urgent funding.

Grants Can Never Replace External Funding

Given their limitations in size and scope, government grants cannot replace external, third-party funding channels – not in the long run, anyway.

Types of Government Grants for UK SMEs

In our guide to start-up funding, we have already discussed the various types of government grants. In the context of SMEs, these types remain more or less the same.

Direct Grants

A direct grant is a project-specific and objective-driven cash reward to businesses that meet the criteria. This is what most businesses think of when they think of a government grant.

Despite being the most popular and sought-after type, these grants come with a host of limitations and riders. As things stand today, direct grants focus more on young SMEs (trading for 5 years or less) in economically disadvantaged regions and districts. Furthermore, the grant amount is usually on the lower side. Given these facts, one would be forgiven to think that direct grants are good for encouraging businesses, but not necessarily supporting them.

  • Direct Grants Are Not Free Money!

It’s a common misconception among business owners and operators that winning a direct grant is just like winning a lottery. The fact is direct grants are nothing like free money.

Almost every direct grant scheme requires you to match the grant amount – a pound for a pound.

In other word, a direct grant of £10,000 will need you to raise £10,000 on your own before you see any of the grant money.

We, at Commercial Finance Network, have helped numerous SMEs raise the capital required to win direct grants. You can learn more about our services here and request a free quote here.

  • Most Direct Grants Are Project-Based.

Unlike other grant types, direct grants are almost always project-based. The grant objective clearly tells you what you’re expected to spend the money on. Some grant bodies go so far as to monitor the spending.

  • Example

A good example of an SME direct grant is the Business Energy Efficiency Programme organised by various local councils in the West Midlands. This direct grant offers rewards up to £20,000 for the qualifying businesses that implement energy saving technologies in their operations.

Finance Grants

If you are looking for a well-meaning financing support for your SME, finance grants should always be the focus of your search.

A finance grant combines the features of grants and loans. Also known as ‘soft loans’, such grants are an excellent way of raising a significant sum of money for SMEs. Typically, the loan amount can go from as low as £5,000 to as high as £250,000. Finance grants are usually available around the year. Unlike direct grants, however, finance grants are repayable. The terms of repayment are subsidised through public funding. So, you may either get a loan that’s fully free of interest, or you may get a lenient repayment schedule with generous repayment holiday months/years.

  • Soft Loans Are Not Always Project-Based

Unlike direct grants, finance grants (soft loans) aren’t always project-based. The grant objectives can be wide-ranging to allow you more control over the spending.

  • The Qualification Criteria Can Be Stringent

Quite a few finance grants require you to prove that your SME is unable to secure funding from other mainstream lenders. This translates into additional documentation and longer processing times.

  • The Grant Amounts Are Flexible

The biggest advantage that finance grants offer is their flexibility. You can negotiate the loan terms and amounts with the grant body (much unlike direct grants that leave no room for negotiation).

  • Example

ART Business Loans make for a good example here. This finance grant offers low-interest loans to businesses that generate employment in the West Midlands. The loan size ranges from £10,000 to £150,000.

The UK Export Finance (UKEF) scheme is also a very fitting example of how government grants are at their efficient best when partnered with private investors and lenders. It aims to promote exports to our major cross-border trade partners by helping SMEs raise funds, win overseas contracts/orders, fulfil these orders and access trade finance.

Tax Relief Schemes

Tax Relief Schemes are indirect grants offered to qualifying SMEs. There are little to no upfront benefits to such schemes. In the long run, however, these tax savings can be very attractive. Here are some common and ongoing tax relief schemes that you can focus on:

Tax Relief Schemes for SMEs

1. Employment Allowance

Most businesses are required to contribute to the National Insurance every year. By securing the Employment Allowance, your business can save up to £3,000 on these contributions.

2. SME Business Rates Relief

All properties owned by businesses are charged business rates by local councils. If your business holds one property (valued at £12,000 or less), you can apply for 100% Small Business Rates Relief. For businesses holding two or more properties, it’s still possible to get proportionately lower relief.

3. Corporation Tax Reliefs

  • Capital Allowances let SMEs claim tax reliefs against the purchase of business assets.
  • R&D Reliefs are meant to encourage R&D spending.
  • Creative Industry Tax Reliefs provide special tax reliefs to ‘creative’ industries such as arts, film, theatre, music and digital media.
  • The Patent Box is one of the most exciting tax relief schemes out there. This scheme allows inventors and businesses to claim tax reliefs against profits made by the use or licensing of their patents.
  • There are many other Corporation Tax Relief Schemes tailored for the need of SMEs. You can refer to this page to learn more.

Tax Relief Schemes for SME Investors

1. Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme is perhaps the strongest investment magnet for SMEs. Under this scheme, SME investors can claim tax credits and reliefs of up to £300,000 each year. This scheme applies to total investment of up to £5 million per year.

2. Seed Enterprise Investment Scheme (SEIS)

This scheme is similar to EIS but limited in scope to serving start-ups and young businesses. If your SME has been trading for no more than 2 years, your investors can claim tax credits under the SEIS.

SME Grant Finder: How to Find Government Grants

Searching through available government grants is no longer a dreadful or time-consuming task. Just head over to the Business Finance and Support page and filter through the available options. This page allows you to zero in on government grants based on your location, business type, size and turnover.

5 Steps SMEs Need to Take to Win Grants

1. Applying Early

Applying early gives you an important edge over competitors. To be able to do this, you need to be aware grant announcements.

2. Preparing a Detailed Business Plan

It doesn’t matter what sort of loan, support or grant you are after – you will always need a business plan that paints a clear picture of the present state of your business and your future objectives. A good, in-depth business plan that answers questions even before they are asked enormously improves your chances of winning government grants.

3. Understanding the Grant, the Grant Body and the Grant Objectives

If your grant application is rejected, it’s very much likely that the fault lies neither with your business nor the grant – it lies with the incompatibility of your objectives with those of the grant body. The best way to avoid this is to apply for grants that share objectives with your business.

4. Having Professionals on Board

If you don’t have prior experience in applying for grants, it’s always a good idea to hire grant experts and consultants.

5. Preparing a ‘Winning’ Grant Application

A generic, off-the-bat grant application is never going to win you a grant. Preparing a grant application that lets the grant body know how you share in their objectives is the key.

We Help SMEs Grow!

Government grants offer a host of opportunities for SMEs to raise the much-needed funding. It is, however, never a good idea to rely heavily on government grants. The timelines are unpredictable, the amounts are usually lower than what you need and you will, in most cases, need to raise external funding anyway.

But it’s not all bad news – there are easier way to fund your business.

Commercial Finance Network – a leading whole of market broker – has helped many SMEs across the UK secure fast and low-interest funding. To know more about our industry-leading finance services, you can visit this page.

Check your eligibility for a low-interest business loan and other finance products by requesting a free quote here.

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A Complete Guide to Financing Start-ups in the UK – Start-up Loans, Governments Grants & More

Financing a start-up can be challenging. In this post, we explore the various ways – from start-up loans to crowdfunding – in which you can go about overcoming this challenge.

The world has seen unprecedented innovation in the last 30 years. By many estimates, these years account for more path-breaking, paradigm-shift-inducing inventions, innovations and ideas than the rest of the human history combined.

It wouldn’t come as a surprise, then, that this culture of innovation has impacted the economy just as definitively as it has our everyday lives. The smartphones we use, the smart payments we make and the big data we routinely stand in awe of – these innovations have left few aspects of modern life untouched. Much the reason why, there has also been a remarkably noticeable upsurge in the number of people answering their entrepreneurial ‘calling’.

The numbers are telling in this regard. In the last five years, the business registration rate has steadily increased despite all the uncertainties around the impending Brexit. If your start-up is among these, it’s quite likely that you are looking for better ways than putting your life savings at stake to raise enough capital.

The Importance of Financing a Start-up Correctly

Choosing a right set of financing options is of utmost importance for any commercial activity.

For start-ups, however, this becomes an even more sensitive proposition. Unfortunately, many promising start-ups pay the price for indecisiveness, inaction and incorrect decision-making. We have seen that the start-up culture is booming in the UK – but there’s always a downside to every argument. The statistics released by the ONS suggest that 48% of new businesses do not survive their first four years of trading. In 40% of such cases, financing problems is the major reason.

By weighing the start-up financing options discussed below, you can avoid your start-up from meeting this grim fate.

1. Start-up Loans

When it comes to funding start-ups in the UK, start-up loans should be the first option you explore.

In the last few years, start-ups have managed to instil a good deal of confidence among lenders. More and more private lenders and banks have started looking at start-ups as huge opportunities, and not mindless, risk-filled adventures. This pattern means that getting a start-up loan is the most affordable and convenient funding option for start-ups across industries.

What is a Start-up Loan?

Start-up loans, even though granted exclusively to start-up businesses, are more like personal loans than commercial loans. This is primarily due to the fact that start-ups don’t have any history of trading to refer to. In most cases, start-ups are founded by a small group of partners and have no history of business credit for the lenders to go by, either.

In essence, a start-up loan is a small, unsecured loan that hinges entirely on the viability of the business model and the personal credit history of the proprietor or the partners.

With one or more start-up loans, you can expect to raise capital up to £25,000.

Why Choose Start-up Loans?

Start-ups, unlike established businesses, have very specific needs, and start-up loans address these needs better than any other financing alternative.

  • Easy to Secure

Start-up loans are much easier to secure when have a good-enough business plan and a blemish-free credit report.

  • Fast Processing

Start-up loans are processed just as quickly as personal loans. This saves you precious time and resources that can be directed towards a successful launch.

  • Little to No Collateral Required

Most lenders offer unsecured start-up loans, once they are convinced of your repayment potential. For higher loan amounts, some collateral may be required to offset the risk taken by the lender.

  • Industry Expertise

This is one feature few other start-up financing options can offer.

If you receive a start-up loan offer from an experienced lender specialising in your industry of operation, it can add immense passive value to your business.

How to Get a Start-up a Loan?

Although most mainstream lenders offer start-up loans, the eligibility criteria and repayment schedules differ wildly from one lender to another. The easiest and fastest way of securing a start-up loan that is tailored to meet your needs is to have a reputed broker like Commercial Finance Broker on your side. Whole of market brokers can approach UK-wide lenders on your behalf, increasing your chances of getting affordable and customised start-up loan quotes.

2. Government Grants for Start-ups

If you are familiar with the start-up culture in the UK, you’ve probably heard of government grants. Even though relying solely on government grants to finance your start-up is impractical, it’s equally unwise to dismiss this option altogether.

What is a Government Grant?

A government grant is essentially a reward granted to various businesses and charitable organisations under various schemes and from various public funds. The primary motive behind the establishment and distribution of government grants is to incentivise innovation, foster entrepreneurship and, in turn, create more employment in various business sectors.

Depending upon the objectives of the grant, your start-up can receive upfront cash rewards, tax incentives, equipment support, technical support and no-interest/low-interest loans. UK start-ups can receive grants from the local authorities, the UK Government and the European Union.

Government Grants for Start-ups: Types and Features

  • Direct Grant (Direct Finance)

This is the most popular type of government grant available for start-ups and young businesses. When you apply for a direct grant, most schemes and trusts will require you to match the grant reward 1:1. In other words, you can expect to raise up to 50% of the required capital using the grant, while the rest will need to be raised through private funding.

  • Available for start-ups
  • Grant size varies from £500 to £500,000 (subject to available schemes)
  • Non-repayable
  • No interest
  • Soft Loans (Subsidised Loans)

Soft loans or subsidised loans aim to strike a balance between direct grants and private or peer-to-peer start-up loans. These loans, available as government grants, are subsidised with public funds so that cash-strapped start-ups can afford them.

  • Loans up to £25,000 are available for start-ups
  • The interest rates (4 to 6% p.a.) are much lower than other loan alternatives.
  • The repayment terms are lenient and generous.
  • Equity Finance (Tax Incentives)

This is a lesser-used but extremely powerful government grant. Through such schemes, the government promotes investments in start-ups by offering up to 50% rebates in the income tax for the investors. The rebate percentage depends upon the size of the business and the business sector.

  • Income tax rebate up to £100,000 can be claimed.
  • Available for start-ups and young businesses with fewer than 25 employees

Government Grants: What Start-ups Should Know

  • Applying for and winning a government grant is often a time-consuming process. If your start-up requires an urgent finance package, grants may not always be useful.
  • The competition is fierce. In recent years, it has become nearly impossible to win government grants in business sectors that do not have a direct impact on the socio-economic policies of the government.
  • Even if you manage to win a government grant, you will still be required to secure an external loan to raise enough capital.

How to Apply for Government Grants

The application process is, in itself, a bottleneck. The slow processing times and ambiguous terms mean that you will need to prepare an extremely thoughtful grant application to qualify.

If you want to win a government grant for your start-up, a proven and systematic approach must be adopted.

  • Know What the Grant is Trying to Achieve

Many start-ups choose to send applications to any and every grant scheme that comes up. This approach usually results into a great deal of wasted time and resources. Instead, you should aim to apply for grants that have specific objectives relating to your business sector.

  • Communicate with the Grant Body/Organisation

It’s always advisable to have a clear communication with the grant body if any of its objectives or terms are unclear. This will help you understand whether you should invest your resources into preparing a grant application.

  • Prepare a Grant Application That Stands Out

Remember – dozens, if not hundreds, of businesses will be competing against you to win the grant in question. Preparing an outstanding grant application will improve your chances significantly. Your grant application should be able to convey how your start-up aligns well with the grant objectives.

  • Supplement Your Grant Application with a Business Plan

You will need a great business plan to bolster your grant application. In the business plan, emphasise the aspects of your business that directly concern the grant objectives. Additionally, you will be required to furnish any external funding commitments you may have received – especially if you are applying for a direct grant.

  • Keep Checking for New Grants

Dozens of new start-up grants are introduced each month. It’s widely believed that the early-bird applications have a higher chance of winning government grants. The definitive list of available grants can be found at the Business Finance Support Portal launched by the UK Government.

3. Investments

If there’s one thing that has added an extra touch of glamour to the very idea of entrepreneurship, it’s the awe-inspiring risk appetite shown by external investors. The stories of start-ups receiving outlandish investment deals regularly make the rounds in start-up circles – and not without their reasons.

Having an external investor on board can be the most cost-effective way of financing your start-up. There are many ways in which your start-up can bring in external investments. Some of these are:

  • Equity investments (selling a share of your equity in the business)
  • Capital investments (mortgaging a share of your equity in the business)
  • Credit lines (flexible credit lines on an as-needed basis in exchange for a fixed percentage of revenue/profits)
  • Custom investments (fully customised investment plans)

4. Crowdfunding

Crowdfunding is an effective way of raising small sums of money, especially for consumer-facing start-ups. It’s all about letting numerous people contribute in their personal capacities in exchange for a stake in your business.

Crowdfunding is a good way to raise money in order to address specific business objectives such as:  fuelling research, manufacturing prototypes, financing marketing campaigns and entering new markets.

Is Your Start-up the Next Big Thing? We’d Love to Hear from You!

There’s something innately attractive about dreaming of an idea, working hard to bring its seed to life and watching it grow into something significant. The unfortunate reality is that many such dreams are routinely cut short for the want of more funding.

At Commercial Finance Network, we’ve been living the entrepreneurial dream – with all its highs and lows – for over a decade. With the help of our UK-wide panel of specialist lenders, we’ve helped numerous start-ups overcome their financing problems. Customised to the highest degree, the start-up loans we broker are more than just loans – they are what the ambitious start-ups of today need to turn the corner and scale newer, higher peaks of success.

Don’t let the funding shortfall stifle your start-up even before it takes off. Call us on 03303 112 646 or fill in our contact form to request a free start-up loan quote.

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Get Your SME Finance-Ready – 5 Actions to Improve Your Business Loan Eligibility

Looking to get an SME loan? Avoid these common mistakes to immensely improve your chances!

Taking the entrepreneurial leap of faith might well turn out to be the most rewarding thing in your life. The sheer joy of seeing a plan, a concept – a dream, indeed – materialise is indescribable. But to get there, you’ll first need to take off the rose-tinted glasses.

The world of business is ruthless beyond measure. No industry, no sector, no niche is devoid of competition. Therefore, your business – like every other business – will need to withstand this competition day and night in order to survive, thrive and, eventually, succeed. And this process invariably involves scaling up your business – a point at which drawing strength from your personal savings or seeking help from friends or family just isn’t enough. This is when you, as an SME, are most likely to seek external funding and financing. This, also, is when you have every chance of seeing multiple business loan applications turned down.

How does a young SME go about securing a business loan that’s both substantial and fair?

That’s a question that needs to be discussed in multiple blogs. For now, we will take a look at the steps that you can take to give your business the best chance of getting business loans. Before that, however, it will be more prudent to understand how the lenders perceive SMEs.

SME Lending Is Changing

  • The lending landscape is fast changing.
  • Open Banking will make getting business loans less difficult for SMEs.
  • Banks’ isn’t the only voice that matters.

SME Lending in the UK – A Stat Check

  • Asset finance, general business loans, equity finance & most other commercial SME loans have grown in size since 2015.
  • As many as 7 in 10 small-business loan applications were approved by lenders in 2017-18.
  • 62% of all SME finance applications in 2017-18 stated business growth as the principal reason for the loan.

British Business Bank SME Finance Report 2017-18

UK Finance Quarterly Reports

Liberis Business Survey 2018

Regardless of the narrative or the wider picture, it’s safe to say that the lenders have always dictated the terms of the commercial finance game. They have had the absolute right – at times, an unfair proposition – to accept, modify or reject business loan applications from SMEs as they see fit. While this isn’t likely to change anytime soon, there are definitely some levellers being introduced by the government to make the playing field more even.

The first amongst this is the rather dramatic arrival of Open Banking (better known as PSD2 across mainland Europe) earlier this year. This purported game changer will not have as much of an impact on everyday banking as most thought. The lending game, however, has been forever changed since its introduction. Thanks to the absolute customer-side control of finance data, your business can now request – nay, compel – big banks in the UK to share your 12-month financials, credit history and other data with private, P2P or overseas lenders. While such data sharing isn’t a new concept, the edge lies in the fact that Open Banking will let the borrower have more control over their data. What this means, essentially, is that getting your SME finance-ready will be much, much easier now than it was five years ago. The lenders will be able to make better, more informed lending decision based on this data – just about as seamlessly as personal loan or credit card applications work.

This development is in perfect alignment with the Small Business Enterprise and Employment Act of 2015 that had made it mandatory for banks and institutionalised lenders to share finance data with alternate credit partners for SME loans.

The fact of the matter is – if you run an SME in the UK, you have a great chance of securing a business loan today than ever before.

What Does It Take for an SME to Get a Business Loan in the UK?

The lending criteria differ from one lender to another. They also depend upon the type of the loan you seek. Some of the most common and fundamental lending criteria for SMEs in the UK are:

  • The borrower should be a registered business entity (Sole Trader, LC, LLP or PLC).
  • The business should have a ‘demonstrable’ trading history of 18-24 months.
  • The director(s), owner(s) or proprietor(s) should be able to furnish personal guarantees if required.
  • The business financials should be able to demonstrate a certain minimum turnover (subject to the amount of the loan).

Understanding Why the Lenders Are Forced to Say ‘No’

Despite the lending atmosphere that’s gaining in positivity as far as SMEs are concerned, quite a few business loans are still routinely declined. In this light, it’s important to understand the common reasons why small-business loan applications fail to get approved. This will help you eliminate a major hurdle in getting finance for your business.

The Business Isn’t on Top of Their Credit Score(s)

Countless SME loan applications fail to pass the very first check that banks perform – the credit check. What’s more astounding is the fact that many SME owners aren’t even aware of the credit trail they leave while their business is trading.

The Business Has Problems

It’s a vicious cycle but that’s how it is.

Most businesses apply for loans when there’s a cash crisis. And lenders don’t like such situations. This Catch-22 is perhaps the biggest hurdles SMEs face in getting approved for a business loan. Along with cashflow problems, other problems such as a questionable business plan, a history of poor business decisions, lack of expertise at the helm and inability to prove the growth potential often lead to loan applications being turned down.

The Time Just Isn’t Right

You cannot apply for a regular SME business loan if your business is just starting up. Most lenders will want to see a trading history of no less than 2 full years. Similarly, if you’re applying for a business loan and your business has been trading for 20 years with little to show for it in terms of growth, the lenders won’t take a liking to your application.

There’s No Collateral Provided

Unsecured business loans attract closer scrutiny from lenders. So, for an SME that doesn’t have a great deal of creditworthiness, it becomes imperative to provide additional security. Business loan applications that aren’t backed by adequate collateral or guarantees usually get declined.

The Plate is Already Too Full

Just like personal loans and mortgages, you cannot expect to get a business loan for your SME if you already have a number of repayments to take care of. A business loan application from an SME dealing with a plate full of loans is almost certain to get rejected, leading to a soft credit enquiry mark that further worsens the situation.

Steps You Need to Take to Improve Your Business Loan Eligibility

There’s no telling what the lender will think of your business loan application. Perception is a strong phenomenon and is still relevant despite much of the work being handled by tried-and-tested credit algorithms. You can, however, take the following steps to make sure that your application stands a very good chance of finding takers.

1. Make Sure the Foundation of Your Business is Strong & Convincing

You want the foundation of your business to be sound, strong and stable. This is vital not just to secure a business loan but also to achieve profitability in the long run.

When you know that your business has a great shot at success, you should be able to convince other people of the same. To convince lenders, you will need a great business plan – especially when your business is relatively new. A good business plan should be accompanied by a cause-and-action plan. This will involve a good explanation of why your business needs a loan, how you plan on using the funds and what your repayment schedule will be like.

A fully customised proposal with all the relevant details shows the lender that you’re serious about the business. This always works in your favour as lenders perceive you as less of a risk and more of an opportunity.

2. Get Your Business Financials in Order Before You Apply

Many businesses get this wrong – but you shouldn’t. Never apply for a business loan if you don’t have an independently audited, tax-certified financials for at least two years in your possession. These financials typically include the tax returns, quarterly balance sheets, cashflow analysis and profit/loss statement.

It’s common for lenders to also request projections over the loan term. So, it’s a good idea to prepare revenue, profit/loss and assets/liabilities projections for up to 5 years before you approach a lender.

3. Know and Understand Your Credit Scores

Regardless of everything else, most lenders will eventually take a look at the credit history of your business before making a decision. Any obvious red flags on this report – from delayed payments and missing records to frequent enquiries and grave defaults – will hurt your application. So, it’s important to know and understand your credit scores before you apply. This includes building a solid credit history for your business as well as personal accounts.

Less than 20% of all SMEs in the UK proactively monitor and assess their credit scores – you don’t want to be a part of that group!

Some useful steps in this regard are:

  • Checking your business credit score once every quarter
  • Filing for corrections when you spot inadvertent mistakes or errors
  • Using a dedicated business account for your business activities
  • Utilising credit facilities such as overdrafts and credit lines judiciously
  • Making timely repayments
  • Not making ‘hard’ enquiries for credit unless you are ready to submit a full application

4. Let the Lenders Know That You Are Invested

A commonly ignored and often decisive mistake is the failure to demonstrate your involvement in your business. Many businesses – especially the ones not registered as Sole Traders – face this problem, just because there’s no ‘face’ attached to the business.

An easy way to avoid this is to make an offer for a collateral. This shows the lenders that you are willing to share the risk with them. Secured loans are always easier to go through.

5. The Time and Timing – Both Should Be on Your Side!

As a rule of thumb, you shouldn’t go searching for a business loan when your business finds itself cornered with nowhere to go. This will only lead to you ruining your credit history with multiple rejections. Having enough time at your disposal is the key. This is where good business intuition and experience will come in handy for you.

As far as getting the timing right goes, you should be well aware of the market situations before applying for a loan. Has the industry your business operates in been faring poorly of late? Have there been any major changes in the lending landscape recently? What has been the trend in the interest rates being offered over the last six months?

Answers to such questions will give you an idea about whether you should apply for a loan right away or it’ll be wiser to wait for a few weeks.

Getting a Business Loan is a Process and Should Be Treated as Such

Many loan applicants think that lenders are prone to making arbitrary decisions. While true in rare scenarios, this usually isn’t the case. The lenders are also in the business – the business of lending money. The more businesses they lend to, the more money they end up making. So, as long as you have taken care of the ‘risk’ factors discussed in this article, you will have little to worry about when you apply for an SME loan.

Applying Left, Right & Centre – A Big No!

The biggest – and unfortunately, the most common – mistake that SMEs make is to apply for credit with no plan of action. Applying at a dozen places will not only lead to simultaneous rejections that will do your credit score no good but also handicap your business from accessing finance when you need it the most. Before applying for any business loan, you should be aware of what your options are – without making hard credit enquiries.

That is exactly what we at Commercial Finance Network, a leading whole of market broker, do for you. Working with some of the best-known and specialist lenders across the UK, we make sure that you get a loan offer that’s fair, fast and flexible.

The days of blindly accepting the first offer that comes your way are long gone. Let our team of experts curate the best business loan quotes for you. Call us on 03303 112 646 or contact us to speak with one of our Business Loan Specialists today!