How to access finance when you are self-employed or a business owner

staff money worries

In the main businesses and sole traders can borrow money using similar channels to members of the general public.

However there are some quirks in terms of criteria and perhaps more importantly the lenders who are willing to lend where the whole purpose of the loan is for business. The actual reason behind business loans vary dramatically but most can be grouped into certain main scenarios per below:

Borrowing for starting a business or to help support a business in need of money

These are two of the most challenging areas to raise money for via commercial finance (this is the way the industry tends to silo loans that are purely for business).

Stuart Johnson, Marketing director at First Choice Finance believes; `Business start-up by its nature means there is not proven history on record to show that the business will work. If you are entering a well-known arena, or perhaps taking on a franchise, then lenders may look at past performance of the same genre. In almost all cases you will need to provide the dreaded business plan`.

This must detail all your costs such as plant, machinery, tools, IT, overhead etc alongside target client base, your marketing plan and anticipated income and very importantly profit. The government offers some incentives to help people start businesses and your local chamber of commerce may be a good start to get a feel for what help, financial and otherwise may be available for your chosen path.

“Business short of money“ is a tricky area. If the business can evidence that the problem is a cash flow matter and there are orders pending on the books that are clearly going to turn matters around in the short to medium term, then there may well be help available.  Contact your business bank account manager and arrange a meeting taking evidence with you that the issue will resolve in time – they already know about your business finance and will want to try and keep you going. Also you can approach specialist business support lenders.

These can be found easily enough on line and are too varied to mention here. However a couple of things to watch out for, firstly rates may not be as low as those advertised for your scenario so check any agreement carefully. Secondly as you may be seen to offer a degree of risk to the company funding you they may seek security from assets.

These may well be the assets that the company already owns such as machinery or buildings. If the business cannot offer suitable security for the money and the lender requires it then you may well have to provide what is termed a “personal guarantee“. In short this means that if you default on the loan you / your co-owners will be personally liable for repaying the debt back to the lenders.

If you do not have the funds / cannot agree a payment plan then the next option would be for the lender to take security over your own assets, such as your home, to ensure they ultimately get their money back. In these cases it is wise to consider taking legal advice before you sign up.

Money to invest to enable your business to grow

It is very hard work to make your business profitable and keep it solvent. Once this is a steady state though the question may well be… “how to I get to the next level?“. Businesses cover a huge range of sectors therefore the limiting factor in terms of resource can vary massively.

If your business is heavy on human resources, perhaps a call centre driven operation then you may need money to invest in better telecommunications / computer software or simply need more skilled people to  make those calls. On the other side you may be into specialist machining of components or supply of certain items to a business supply chain.

This can be in areas such as automotive, engineering or printing / packaging. These sectors use some very specialised and expensive plant / equipment to manufacture their wares.

The good news here is there are lots of lenders willing to consider investing in a profitable business to help it grow. Again your bank may be a good start, or other mainstream lenders that operate in the business sector.

If these are too expensive or cannot help and specialist lenders are not what you need, other options include: private equity funding ; where they lend the business money for a stake in the same and merging ; where you combine forces with another company who has the equipment you want and have capacity, whilst your business would also reinforce the merging parties offering.