Raising capital for a business is one of the biggest challenges entrepreneurs face, and there are many different options to consider. From traditional loans to government grants, understanding your finance options can be difficult and confusing.
In this article, we’ll explore steps on how to get a business loan and ways to raise capital.
Why is it so important to choose the right option when raising finance for your business?
We spoke with Commercial Lending Director at Homeowner Loan Broker ABC Finance to find out why this is so important.
“Each business is different, and their financial needs at any time may also be different, meaning there is no one size fits all product”
“Choosing the right finance product isn’t just about the interest rate, you should also consider how long you need the money for, whether you want to repay and borrow again at will and how much you can afford to repay” Gary added.
“Failure to choose the right product can put your cash flow under pressure and increases the risk of you defaulting further down the line”.
What are the top options for businesses that are looking to raise money?
The top options for business owners who are looking to raise finance are:
- Unsecured Business Loans
- Homeowner Loans
- Asset Finance
- Commercial Mortgages
- Government Grants for Businesses
Below, we explain each option in more detail.
Unsecured Business Loans
Unsecured business loans are financing solutions that do not require any physical assets as collateral.
These types of loans carry higher interest rates and shorter repayment terms than other loan types, but they often provide the fastest way to access the funds needed for a business.
They can be used to cover working capital costs
Homeowner loans are a type of loan designed specifically for people who own a home. This type of loan is typically secured against the value of the property and usually offers higher borrowing power and lower interest rates than unsecured loans.
Homeowner loans can be used for many purposes, including raising finance for a business. Most lenders will be happy to lend for business purposes, as long as there is s strong rationale.
It’s important to remember that while you’re borrowing for business purposes, when you take out a homeowner loan, your property is at risk, should you fail to repay the loan.
Asset finance is a form of financing that allows businesses to acquire key assets without having to utilise their own capital. It can be used in a variety of ways, the most popular being leasing, hire purchase/rental agreements or secured borrowing.
This type of finance provides companies with access to the equipment they need while allowing them to spread the cost over a period of time.
Asset refinancing can be used to raise money against your existing assets, such as equipment, machinery and vehicles. This allows you to raise the funds that your business needs, while still retaining the equipment to use as you need it.
Commercial mortgages allow business owners to raise capital against their business premises, as long as they own them, have sufficient equity and can afford the loan.
Commercial mortgages allow you to borrow large sums of money and repay over a long period, often up to 25 years. This means that despite the large amounts available to borrow, the monthly cost of a commercial mortgage is usually lower than other types of finance such as an unsecured business loan or asset finance.
The biggest downside to commercial mortgages is that the application process comes with several fees, which can be expensive. They also take longer to complete than the other products explained in this article.
Government Grants for Businesses
Business grants are financial awards that are given to companies to help them fund specific projects or initiatives. They are often provided by government agencies, non-profit organizations, or other funding sources, and are designed to support the growth and development of small businesses.
Business grants can be used to raise finance for companies in a number of ways. Some common uses for business grants include:
- Funding new projects or expansions: Business grants can be used to fund new projects or expansions, such as the development of new products or the expansion of a company’s operations.
- Covering operational costs: Business grants can be used to cover operational costs, such as rent, utilities, and other expenses related to running a business.
- Hiring new employees: Business grants can be used to hire new employees, particularly if the grant is specifically designed to support the growth and development of the company.
- Purchasing equipment or supplies: Business grants can be used to purchase equipment or supplies that are necessary for the operation of the business.
To be eligible for a business grant, companies usually need to meet specific criteria and provide evidence of their need for financial support. It’s important to research different grant opportunities and carefully review the application process to ensure that your company is eligible and that you have a strong application.