Self employed outlook- Raising finance

This blog post is the first in a series for business owners and the self employed.

Marc Lawson of Business Vision Accountants outlines the options for financing your business.

Every business from its commencement and through its development and growth will need finance.
The forms of finance and methods of obtaining them have substantially changed in the last 10 years so to help you I’ve set out below some brief points on the type of finance now available and guidance on how to use those choices.

Sources of finance

Peer 2 peer lending

This has now become a major source of finance for businesses. The process works by a web based company acting as the middle man between investors with money to invest and business owners who are keen to attract borrowing at competitive rates without necessarily having to resort to high street banks.

One of the biggest of these is Funding Circle. The process works by a business putting forward a business plan. Funding Circle will then credit rate that plan on behalf of its investors and publish it (assuming they give it the go ahead) on their website. After a short time the business will then have a long list of potential investors and assuming they have sufficient offers to cover their original loan request, then they simply need to give the go ahead. Funding Circle will then collect loan repayments direct from the business (so that there aren’t hundreds of individual repayments) and give out interests to the investors.

Bank loans and overdrafts

Banks are still very active in the market of lending and typically lending would take the form of an overdraft or bank loan. Overdrafts are a very flexible form of finance which, with a healthy income in your business can be paid off more quickly than a formal loan. The downside of an overdraft is they are typically repayable on demand and renewable annually so are not as certain as other forms of lending.

Many businesses appreciate the advantage of a fixed term loan. This gives them the comforts that regular payments have to be made on a loan and this makes for costing and budgeting easier. They may also feel that, the bank is more committed to their business for the whole term of the loan.

Interest rates are relatively low at the moment but banks have typically sought to charge a higher “base rate plus” so rates of 8 or 9% are still common.