My bank has turned down my request for a loan. What alternative funding sources are available and how can I access them?
Despite pledges from the Government to increase lending to smaller businesses, many firms are still finding it increasingly difficult to obtain finance from their banks.
However, a ‘no’ from your bank does not have to mean the end of the story. In fact, a number of alternative funding sources are available, in many cases offering comparable, sometimes more favourable, repayment terms than those offered by the banks.
Many business owners are not taking advantage of these opportunities because they are either not aware that they are available or they do not know where to turn for help.
Peer-to-peer lending websites are becoming an increasingly popular source of commercially-priced loans. The principle of such a service is to put businesses in need of funding in direct contact with individuals looking to invest either the full amount or part of it in conjunction with other investors. The pricing of the loan is tailored to a number of factors, including:
- the amount needed
- the risk involved (including the borrower’s credit rating) and
- the likely return they might expect.
This is also known as crowd-funding, as you are effectively pitching your business idea or project to an online audience of tens of thousands of potential backers.
Another alternative is a ‘business angel’. This is normally an affluent individual who provides finance for a business start-up, usually in exchange for a stake in the business. Again, this is a way for entrepreneurs to access valuable funding, potentially with more favourable borrowing terms on any debt offered. However, it is worth remembering that angel investors will expect a certain amount of control or influence over your business (as they are essentially purchasing part of the business) in return for their investment so professional advice should always be sought before entering into any agreement.
The availability of quite generous tax reliefs for investors in private companies has resulted in an increasing number of high net worth individuals taking an interest in angel investment. Investment schemes include the Enterprise Investment Scheme (EIS) and, as from April this year, the Seed Enterprise Investment Scheme (SEIS). However, important criteria must be met for the tax reliefs to be obtainable and it makes sense to seek early advice to ensure that these criteria are met.
Understandably, corporate finance can be a confusing area for many business owners. How do you know which option is most appropriate to your needs?
At Milsted Langdon, we understand that no two businesses are the same, which is why our advice is tailored to your circumstances. Our dedicated corporate finance team are highly experienced in helping businesses of all types and sizes raise finance through a wide range of sources. After taking the time to get to know you and your business goals, we can help establish which funding source would best suit your needs. We can then source lenders or investors, and help you prepare a high quality business plan to assist with securing the required funding.
For further information on alternative funding or any other corporate finance issue, please contact David Fawcus at dfawcus@milsted-langdon.co.uk or Susannah Adams at sadams@milsted-langdon.co.uk. For further information on any of Milsted Langdon’s services, please visit www.milsted-langdon.co.uk.
