Businesses thrive on innovation and the challenge of meeting new opportunities – this is invariably a key to their financial success.
But in order to innovate, in order to rise to the challenge of new opportunities, businesses also need access to the necessary funding. Where is that funding likely to come from? Let us take a brief look at some of the options:
Retained profits
- whatever type of business you are running, one of the fundamental objectives is for income to exceed expenditure – for a profit to be made;
- as profits are retained over the years, these give your business the means to meet unexpected expenditure, invest in new assets and technology and gradually expand your enterprise;
- such are the demands on the retained profits of practically any business, however, that alternative sources of funding are typically required to launch new projects or to boost the working capital on which the business relies;
Equity share
- traditionally, one of the most common ways of raising funding from outside the business is to offer a share in its equity in return for invested funds;
- the amount of the investment and the share in the business that is offered in return is entirely a matter between the business owner and the equity investor – the latter sharing in the profits made by the enterprise over time;
Angel investors
- perhaps one of the best illustrations of the way in which equity investment works is given by the popular TV show, the Dragon’s Den, where established investors decide upon the likely success or otherwise of a range of business ideas and concepts that are presented to the team;
- these are so-called Angel Investors;
- according to the UK Business Angels Association (UKBAA) – which has a membership of some 160 angel investors – around £1.5 billion a year is contributed to British businesses through such activities;
- angel investors, or business angels as they are also called, are typically wealthy individuals who have already demonstrated their own business acumen and who are equipped to judge the potential success of a new or expanding business and invest in it, in return for an agreed share in the equity of the enterprise;
- for this reason, they are one of the main sources of outside investment for start-up companies and for others looking to seize new market opportunities with the potential for business expansion;
- this source of funding is also represented by the Angel Investment Network – which identifies and tracks trends in the types of industries and sectors currently proving popular for such angel investors;
- any type of equity investment – whether by a business angel or other source – involves the investor taking a share in your business and this might also involve sharing some degree of decision-making with them as to the direction your business takes;
Crowdfunding
- one of the relatively new sources of funding for businesses comes from crowdfunding – typically involving a specially set up crowdfunding platform which pools or aggregates lending from many individual investors and matches the funds to borrowing businesses;
- both peer to peer or loan-based crowdfunding and investment-based crowdfunding activities are now regulated by the Financial Conduct Authority, which explains the essential difference between the two sources available to businesses;
Secured loans
- newer sources of funding have developed at least partly in response to the decline in the traditional role of banks as the traditional source for lending to business – especially by way of loans secured against the assets of the business or the personal assets of its owners;
- not only have banks tend to withdraw from this traditional role as the ready source of lending, but many businesses may also be wary of the long-term commitment and cost involved in secured borrowing;
- not only are assets put at risk – in the event of any default in making repayments – but a secured loan which is repayable over many years also attracts a large amount in interest repayments;
Unsecured loans
- for reasons such as these, a ready alternative – especially for those businesses with the status of operating in a recognised profession field – is a fixed rate, short-term unsecured loan;
- at Professions Loans, we offer unsecured loans with flexible repayment terms of between just six months or up to five years;
- equally flexible is the way in which you choose to apply the borrowed funds, whilst a fixed rate of interest means that monthly instalments are repaid by the same, easily managed amount each month;
- a fixed rate, unsecured loan from us may be quickly and easily arranged to meet any urgent requirement for the funding you need for your business.
Borrowing represents one of the principal ways in which businesses gain access to the capital they need to meet new challenges or existing obligations. Amongst the most flexible of your borrowing options are likely to be fixed rate, unsecured loans.