Knowing the numbers: An overview of UK corporate finance

It’s no secret that businesses of all sizes need capital to grow. In an ideal world, you would be able to use money within the business to fund this growth. However, as UK corporate finance experts we understand that this is rarely an option for most business owners.

Traditionally, you would have gone to your bank to fund your venture, or to aid growth. For the last decade, banks have been more cautious and this has led to a rise in alternative funding options. Knowing your way around these complex funding options may help if you are seeking finance for your business.

Funding options available for your business
Whatever stage your business is at, knowing what options are available to you will help you to progress through the business growth cycle.

Which option is best suited to you will depend on the circumstances of your business. As corporate finance experts we’ve helped businesses in and around the East Midlands and London to secure funding. If you are seeking funding for your business, we’d be delighted to talk through your options in a face to face meeting.

The options will vary depending if you are seeking; equity finance or debt finance.

Equity finance
In simple terms, equity finance is the raising of capital through the sale of shares in a business.

Equity finance can be used to support a growth strategy or to help a new business to become established.

Some of the options available through equity finance include:

Business angels: It may sound like a strange name to associate with an equity financier, but business angels are individuals or a group of people who invest in businesses with good potential for growth, sometimes at risk to their capital.

The companies that business angels invest in are usually at the growth stage but can be established businesses with growth and development potential.

Venture capitalists: Are different to business angels in that they usually only invest in businesses who have the potential for high returns and may have a proven track record of success. This means they rarely invest in start-ups.

Corporate Venture Capitalists (CVC) is a growing area of equity finance. It works along the same principals of venture capitalists, but the equity investment is made by a corporation, or an investment entity of a corporation.

Private equity: If your business is seeking medium to long term investment, private equity could be a route to consider. Private investors may invest in the company for a longer period of time than a venture capitalist (usually five to seven years).

Private equity may support operational improvements, investing in a new product line or service, or through expanding into new markets.

Equity crowdfunding: Crowdfunding is an increasingly popular option to raise equity finance. Using an internet-based platform a business can connect with hundreds, even thousands of potential investors, some of which may be customers of the business.

To add your business to a crowdfunding platform, you have to be able to show that the business is ready for investment. You may be asked to show a copy of your business plan and financial forecasts.

Debt finance
Debt can be used to fund long term investment, acquire fixed assets such as plant or machinery or to fund working capital.

The funding is provided on the basis that the business is able to repay the debt over a period of time and to cover interest and repayments monthly or quarterly.

Debt financing is different to equity finance, in that it doesn’t involve the selling of shares or the relinquishing control of the business, but it may require that the business provides security for the loan.

Some of the options available under debt finance include:

Overdrafts and loans: An overdraft is typically available to help finance a business’ working capital or to meet short term financial requirements. It should not be used all of the time and ideally a business will only utilise the overdraft at peak cash flow times.

A loan is best suited to finance larger long-term purchases, such as plant and machinery or vehicles.

In order to obtain an overdraft or a loan, you must be able to show that the business can generate the cash to repay the loan and that you can meet the monthly interest and capital payments. Part of this, may involve providing the funder with forecasts. The funder may also require security, such as a debenture or personal guarantee.

Peer to peer lending: This is an increasingly popular way to obtain finance, and it’s an alternative to traditional bank lending.

Using an internet-based platform, a business is matched with suitable lenders. The money that can be borrowed through peer to peer lending can range from a thousand pounds to millions.

To use the service, the platform will require you to provide a track record of trading, a copy of your financial accounts and you will need to undergo security checks.

Invoice financing: Involves borrowing against outstanding debtors. The premise of this is that the money that is borrowed is used to aid cashflow, i.e. to supporting working capital requirements.

It is suitable for businesses who sell goods or services on credit to other businesses. Invoice financing is a complex area of debt financing, and professional advice should be taken.

Asset Finance: This is available to fund plant, machinery and vehicles. The asset usually provides the security for the debt which is repaid over the life of the asset. There are options to lease or acquire ownership through hire purchase. Advice should be taken on the best option for your business.

Export and Import finance: There are various funding options available for your business to support exports and imports. This includes for example raising funds against letters of credit or contracts. This is a specialist area and advice should be taken.

Summary
As can be seen there are a number of options to raise finance and we will be pleased to discuss these in more detail. Please contact us on website@wrightvigar.co.uk or 0845 880 5678.