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It is likely that your bank will not lend you any more money for your company unless you are prepared to offer your home as security, which goes against the whole purpose of being a limited company, as That the liability of the company is limited. With the banking crisis being well documented and covered in every possible shape and form, it has left small business owners not many options in terms of their ability to access funds from banks. Having previously worked in the banking world, I know that there is little or no appetite (certainly in the UK) to lend money to small businesses, unless they really need it. So we have to look at alternative methods of funding, so we will discuss here.
So first we will consider what are the alternatives. For some they may be completely comfortable that they will be able to meet their business requirements and therefore will be happy to offer some residency equity in exchange for a loan or overdraft facility. Some people will not be comfortable with this, and will need to consider other options.
First consider the fact that you may not need the money. What if you were able to delay payment to some of your suppliers, or alternatively receive payment earlier from some of your customers, this could make a difference from a cash flow perspective, which could mean that now You don’t need extra money. However, for some things this won’t be practical, and so we have to consider funding options.
Funding options are:
Try another bank. Just because your primary bank has decided not to lend money to your company, doesn’t mean that another bank will come back with the same response. All lenders will have different criteria, and certain allocations of capital for certain sectors. For example, if Lloyds has a lot of exposure to the healthcare sector, their underwriting criteria could become increasingly onerous, whereas HSBC is looking to expand its exposure to this sector. So in my experience it is worth trying alternatives. It is of utmost importance that you have a well researched and documented business plan, something on the back of a cigarette packet will not suffice, do the background work and make the right impression from the front as this will vastly improve your chances.
– Consider private equity or angel investors. This type of investment will require you to give up a stake in your business, however if you are able to secure the right level of funding for the right equity stake, you can increase the critical mass of your business and increase your prospects. Can make massive improvements. It’s not for everyone, although it may work if you have development costs or some significant upfront cost requirements. Before you give away a big part of your business, consider how it will make you feel in future years when you’re not making a lot of money, but then something has to be given.
– Try friends and family, you may not have considered everyone who might be interested in taking a small equity position in your company.
Try asset finance. If you are looking to buy a specific property it may be easier to fund it directly against the property, as the lender will have security against it and therefore may not have to charge on your residential property. Also this would normally mean that the finance would be fixed for an agreed period, but could also be fixed at an agreed rate of interest, meaning your outgoings would be fixed.
– There may also be a number of grants that are available to you, including local government grants and other funding methods that you may not have considered. Talk to your local BusinessLink representative and they may be able to recommend some funding methods that you may not have considered.
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