Ways to fund your SME before and during operations

finance

Some statistics suggest that only 40% of small businesses make it past the five year mark, which shows the importance of financial planning when setting up your own venture. Here are some elements of funding to consider.

Getting Started

Having enough capital to fund a business before it has been set up is, of course, not a luxury available to everyone. Many people have to save for years before they have the required amount to even set up a business, let alone run one, so it is important that you thoroughly check the funds available to you from the start.

Start-up Loan

A start up loan can potentially be withdrawn by someone who is starting a business or has been up and running for two years or less. You may be eligible for between £500 and £25,000, and must be 18 or over and a UK resident.

The loans are paid back at 6% per annum, and are government backed. They are also unsecured which means you do not have to secure an asset to acquire them, which is very useful for those starting a business who do not own a lot of wealth.

Asset Finance

This form of funding involves using your company assets to get a loan for your business. This could range from accounts receivable to a company building, so the options are wide and varied. The main difference compared to asset-based lending is that it is assets which are already owned which are used rather than assets which are to be paid off.

This type of loan is normally utilised for short term business needs rather than for a long-term investment, and thus the loan should be paid off as quickly as possible.

Invoice Factoring

This type of financing is directed at businesses who invoice their customers, and involves selling those invoices to a third party in order to receive payment for them straight away. The third-party company will usually buy the invoice for around 80% of its value and then pay the rest (minus their fee) when the customer actually pays the invoice.

This is a good way to finance a business with cash flow problems or which needs to speed up its cash flow, as it allows payment to be received immediately rather than waiting 30 days or more for the customer to pay the invoice.

Investment

One type of investment which can supplement business earnings is forex trading, which involves the buying and selling of world currencies. If successful, profits from this type of investment can be put straight into the business in order to grow and develop it. Some people even make a business solely from forex trading, but it is risky and profit is not guaranteed.

Similarly, you could invest in other markets such as commodities or stocks and shares which would follow the same principle.

These are just some of the many funding options available to SMEs, so it is worth doing some research to find which would work best for your business.

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