Alternative Ways to Fund Business Growth
While it’s possible that a small business can succeed using only its own revenue, business owners usually need to find alternative ways to fund business growth.
Of course, investments by the founders and owners can go a long way. However, in almost every case the company will expand faster with access to generous financing.
Naturally, businesses that have the ability to pay for crucial expenses and investments without having to disrupt their cash flow essentially have a super power that sets them apart from their contenders.
Unfortunately, businesses in the UK have difficulty obtaining bank financing. As a matter of fact, banks reject more than 100,000 small businesses for loans each year.
The bank referral scheme laws, passed in 2016, have changed things, however. Banks in the UK are now required to inform businesses about where they can seek alternative financing options, if they’re ineligible for a loan from the bank.
What’s more, some of those alternative financing methods require only proof of sufficient monthly revenue. Therefore, if you can show that you’re making a certain amount per month on a consistent basis, your business may be able to take advantage of some of the following financing options to fund business growth.
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Use Merchant Cash Advances to Turn Revenue into Leverage
Merchant cash advances (https://www.merchantmoney.co.uk/merchant-cash-advance) have recently become popular with small businesses for funding business growth. That’s because they allow you to repay the loan by taking a small percentage out of each incoming payment.
This is great for retail companies that do a lot of daily sales. That’s because the business can pay back the loan quickly and easily. And the owner does not need to save up and pay lump sums to the lender.
Instead, the business repays the funds automatically because of the small tax that’s added to each incoming deposit. That way, every time a customer buys something they’ll be chipping a small bit of the business’s loan debt away as well.
Use Invoice Factoring to Turn Unpaid Invoices Into Cash
Invoice factoring is similar to merchant cash advances. However, in this case, instead of paying back the funds in small amounts out of each individual transaction, you pay back the loan all at once via upcoming invoices.
This plan is ideal for companies that get paid every 30 or 60 days via large work invoices. If you can show proof of invoices exceeding a certain amount for a decent number of consecutive months, that documentation might be all you need. Then you can turn your current revenue into an invoice factoring advance.
Apply for Small Business Loans Using Revenue as Proof of Eligibility
There are a number of lending institutions that aren’t banks but which provide small business loans for limited companies in the UK.
However, the business owner will probably need to sign a personal guarantee that states their personal credit score will be negatively affected if they default on the loan. Additionally, the main applicant’s credit score needs to be at least 550. Further, the business’s monthly revenue has to be at least £4,500 in order to obtain approval.
However, you can obtain loan amounts up to £20k-50k. Therefore, it might be a smarter move for long-term business growth to apply for that larger lump sum. This could make more sense than applying for a smaller amount that would only see you through the short term.
Combine All of the Above for Best Results
You don’t want to overextend your credit capabilities and wind up in a ton of debt. However, it wouldn’t hurt to compare as many different financing options as possible before you settle on a long-term solution.