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Raising capital in business: Assess your options

4 min read

27 September 2019

Securing working capital can make or break your business. Here’s why it’s crucial to assess your options from the start.

Whether starting a business from scratch or looking to take an existing firm to the next level, working capital can be the ultimate deal-breaker.

Commercial finance is available in a variety of forms, but isn’t always easily accessible. For smaller businesses in particular, surviving those first few crucial years can be problematic due to cashflow issues.

This is why it is important to assess not only what you need, but how you can get it. It’s rare for any business to get by without financial support of some kind. Getting the best possible deal means comparing loans from multiple providers, while at the same time evaluating the various different types of loans available.

From a commercial finance perspective, there are various avenues to explore for covering major and minor costs. A few examples of which include the following:

Traditional bank loans

These are the standard unsecured loans issued to borrowers on the basis of their financial status and credit history. Unsecured bank loans are typically available in amounts of £10,000 and under.

Secured loans

There are significantly fewer restrictions on secured loans, which can be provided in almost any sum required. Secured loans are issued on the basis of collateral – i.e. the assets the borrower can provide to cover the costs of the loan.

Specialist business loans

Some banks have specialist arms for business lending, providing bespoke commercial finance solutions for small and large businesses. In almost all instances, the specialist business loans are offered in the form of bespoke secured loans.

Bridging loans

When time is a factor, bridging loans can be the fastest option for accessing relatively large amounts of money in a short period of time. Typical bridging loan underwriting processes can be as fast as 3 to 5 working days.

Each of these loan types has its own unique characteristics and advantages. For example, a secured loan may attach a lower interest rate than a traditional bank loan, while a bridging loan may be faster to arrange than a specialist secured loan. Across the board, however, the importance of assessing the available options (lending channels) cannot be overstated.

It’s perfectly possible to get a good deal via any of the following, though some come more highly recommended than others:

1. Approach a lender directly

If you find the right lender to suit your needs, they may be able to offer you an affordable deal. However, they’re unlikely to recommend the products and services of their competitors, even if a superior deal is available elsewhere.

2. Compare options online

There’s also the option of comparing loans online, using one of the many independent comparison sites. This can be a great way of identifying cost-effective loan options, but there’s a chance not every suitable lender will be included in your search.

3. Independent broker support

In most instances, the quickest and easiest way of finding the best deal on the market is to work with an independent broker. You take your case to an independent specialist and have them scour the UK market for your ideal product.

It’s also worth factoring in your requirements and financial circumstances, when choosing a commercial finance channel. For example, you may struggle to qualify for a traditional bank loan or a conventional secured loan with a poor credit history. Again, an independent broker can provide the impartial consultancy you need to target the right lenders for your needs.