Grants

Given the current economic climate, there are very few grants available to businesses and those that are available are subject to a number of factors. Grant bodies prefer to see specific targets and results – often compatible with their own objectives. As well as making an assessment of the benefits of your project, the awarding body will expect a high level of commitment from you and your business and for the project to be commercially viable. Whether you are eligible for a grant will depend on the terms and conditions of the specific grant for which you apply. Grant schemes often run out of funding before the project ends so apply asap.

Borrowing against invoices

Invoice financing is where a third party agrees to buy your unpaid invoices for a fee. Invoice financiers can be independent, or part of a bank or financial institution.

There are 2 types of invoice financing in the UK.

Factoring

‘Factoring’ – also known as ‘debt factoring’ – usually involves an invoice financier managing your sales ledger and collecting money owed by your customers themselves. This means your customers will know you’re using invoice finance.

• When you raise an invoice, the invoice financier will buy the debt owed to you by your customer.
• They make a percentage of the cost (usually around 85%) available to you upfront.
• They then collect the full amount directly from your customer.
• Once they’ve received the money from your customer, they make the remaining balance available to you.
• You’ll have to pay them a discount charge (interest) and fees – the amount depends on which invoice financier you use.

Invoice discounting

With ‘invoice discounting’, the invoice financier won’t manage your sales ledger or collect debts on your behalf. Instead, they lend you money against your unpaid invoices – this is usually an agreed percentage of their total value. You’ll have to pay them a fee.

As your customers pay their invoices, the money goes to the invoice financier. This reduces the amount you owe, which means you can then borrow more money on invoices from new sales up to the percentage you originally agreed.

You’ll still be responsible for collecting debts if you use invoice discounting, but it can be arranged confidentially so your customers won’t find out.

Floatation

For raising over £500,000, a listing may be your best option. It is often the next step after angel and VC funding – but it can be a complex process. Initial public offerings (IPOs) involve floating your company either on the Alternative Investment Market (AIM) or on OFEX. There is typically more new capital on offer than from other sources of finance.

They may be worth considering if your business:

• Has an aggressive growth strategy
• Has a strong record of profitability
• Is in an attractive sector
• Wants to raise its profile
• Needs from £500,000 to £10m or more

AIM, the London Stock Exchange’s (LSE) market for smaller companies, is often a first step to joining the main list.  The OFEX market is regulated by the Financial Services Authority (FSA). It is often used as a stepping stone to AIM.