- There are a variety of fixed and variable rate, short and long term loans available, often secured against the assets of the business
- Many banks also offer invoice and asset financing (see below) to assist with working capital funding.
Invoice Financing / Asset Based Lenders
- These lenders secure their loans against the assets of the business, including trade debtors, property, plant and equipment and inventory
- Interest rates are typically lower than unsecured commercial loans
- See also https://www.teamsas.co.uk/discountingvfactoring/.
- There are several crowdfunding platforms specialising in debt. These are known as peer-to-peer lenders (P2P) as they are not banks. P2P websites work like marketplaces that bring together people or businesses that want to lend with those seeking a loan
- Funding Circle is probably the UK’s best-known P2P lender.
- A hybrid (mix) of debt and equity financing that gives the lender the right to convert to an ownership or equity interest in the company if there is a breach of the lending terms. This conversion right is used a mechanism for the funders’ downside protection
- Lenders typically seek returns between 10% and 20% as the mezzanine funding is usually unsecured.
- Consists of investors and funds that make investments directly into (relatively established) private companies in return for a share of equity.
- Funds are typically used to finance growth (e.g. as part of a Management Buyout) and/or acquisitions.
- In contrast to private equity, the Venture Capitalists (“VCs”) tend to invest in smaller, less established businesses with exceptionally high growth potential.
- There are several crowdfunding platforms where business can raise capital by selling equity. The best-known equity crowdfunding platforms in the UK are seedrs and crowdcube. In October 2020 they announced their intention to merge.
- Firms can raise cash via an IPO (i.e. stock market flotation)
- This is often used as an exit route for businesses which have been backed by private equity.
Government / HMRC
A third, sometimes underexplored source of capital is the UK Government.
- There also Government Grants, in particular for innovative businesses working on emerging technologies, processes and opportunities.
- A government grant is a sum of money awarded by the government that does not need to be repaid. It is therefore non-dilutive, which means no equity is given away in exchange for these grants.
- Many business use specialist grant application firms to apply. Here is an example https://grantedltd.co.uk/
Research and Development (R&D) Tax Credits
- Successful R&D tax claims result in your business either receiving a cash payment from the government and/or a Corporation Tax reduction.
- R&D tax credits are aimed at businesses to promote investment in their R&D.
- Similar to grant applications, there a specialist firm that almost exclusively deal with R&D tax claims, here is one of them https://cbtax.co.uk/about/.
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