Whether you are looking to acquire a business or expanding your existing business you will often require external finance to assist you. There are many different ways a company or individual can raise finance in a commercial transaction, for your ease, we have listed some below:
Mezzanine Finance
This is where the financier will provide you with a conventional loan but will also take an equity stake in the business. Typically the debt is repaid in one lump sum and the equity stake is usually in the form of a warrant that provides a return on exit without diluting your shareholding.
Venture Capital
In return for funding, a venture capitalist (VC) will take an equity stake in the business. Usually channelled through a venture capitalist trust (a vehicle which enables VC’s to raise money from investors) the VC will be looking for a high return on its investment due to the risks involved.
Business Angels
Often very successful businessmen who have sold their company. Angel Investors typically provide an investment ranging from £10k to £1m in addition to offering their time and support for your business. In return, investors normally require an equity stake in the business.
Payroll Finance
Payroll finance is finance linked to the cost of your wages bill including national insurance over a specified period. The finance is usually unsecured and can provide a safety net against wage costs in a downturn.
Leasing
This type of finance takes a number of forms such as contract hire, operating leasing and hire purchase. Used to purchase capital equipment it helps to preserve working capital. If ownership of the capital equipment does not pass to the business then the cost is deductible from profits for tax purposes.
Business Grants
An incredibly complicated area with a vast range of agencies and organisations offering grants, this is an attractive form of funding as typically the finance is provided without interest or a requirement to repay. Most grants require matched funding from the applicant and are provided to meet certain objectives of the grant provider.
Asset Based Lending
This is finance provided against an asset you own. The funder will take a charge against a specified asset and the charge is registered either at Companies House or the Land Registry. In the event that the loan is not repaid the asset will then be sold to meet the debt. As the loan is secured, interest rates tend to be lower than unsecured debt.
Invoice Discounting
This is funding provided against a company’s debtor book. Typically the funder will advance between 70% to 90% of the invoice value when the invoice is raised. Distinct from factoring, Invoice Discounting means that you still chase and control your debtor book.
Factoring
Finance provided against the debtor book, factoring differs from invoice discounting in that the funder collects the debt.
Bank Loans
Banks will provide finance to companies that can demonstrate serviceability and in most cases have some form of security to offer. The bank will normally take a charge over the assets of the business and will charge interest.
Enterprise Finance Guarantee
The EFG scheme is designed to assist borrowers without security to raise finance by providing a government backed guarantee for 75% of the loan. Funds are provided by approved banks and normal lending criteria is applied.
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