Different Types of Business Finance Explained

Accessing the right debt finance for your business can be hard – the debt market is very noisy and has some sharks patrolling its shores. Despite this, raising finance is a very common requirement for the majority of businesses whether they are a start-up or large Corporate.
Before taking on any new debt, the first question we always think requires serious consideration is “Do I actually need it?” Can the business get where it needs to be in the same timeframe without the debt, albeit with a bit more difficulty along the way? If so, don’t take the debt on and endure the short-term pain for the long-term gain.
If taking on new debt is the right option for the business, then we typically see this taking one of three formats:

1. Finance for Growth: 

Start Up Loans – Typically aimed at the pre-start/early stage marketplace, Start Up Loans are government backed loans where the borrower/s can each borrow up to £25,000 to a maximum of £100,000 for any one business. Critically, these loans are personal loans and repayments will be made by the individual. Interest rates are 6% which is reasonable relative to the high-risk nature of the loans themselves.
Working Capital – “Revenue is vanity, profit is sanity, cash is King.” Every evolving business has its working capital pinch points and cash management is one of the biggest challenges that SMEs face. Working Capital finance can give a business the breathing space it needs to manage its growth, hire new staff, take on new contracts etc.
Assets/Equipment purchases – Raising finance for equipment, vehicles or acquiring a property is a natural evolution in most business’ growth. There are a variety of ways to fund an asset-led deal which can work well for a borrower and add some tangible value to a business’ Balance Sheet. When allied with certain tax breaks (Capital Allowances) that businesses can currently receive, they are well worth consideration as a business looks to expand.

2. Finance for Mergers & Acquisitions: 

A Merger or Acquisition can be a great way to accelerate business growth and profitability. Certain sectors such as Technology and Healthcare are ripe at the moment for consolidation. Raising finance in this area can be challenging and requires a substantial amount of due diligence and financial analysis and forecasting. Getting the right finance package in place can be one of the key determining factors between a good deal and a bad one.

3. Finance for debt management/refinancing: 

In our ever-changing and unpredictable world, a rise in the Bank of England’s base interest rates can have a meaningful impact upon monthly debt repayments. As a result, refinancing debt via a cheaper provider or looking to extend the term of a repayment can ease cash pressures and allow management to focus on the core activities of the business.
At Start.biz, we have 15 years’ experience raising debt finance in all of the above areas and have built a network of industry contacts over this period to introduce our clients to. Give us a call on 0800 069 9090 or e-mail via finance@start.biz to set up your free consultation.

How to Lease Equipment for your Business

Buying equipment outright for your business may be an expense out going early on so you should consider leasing where appropriate.

1. What are the benefits of leasing equipment? 

When setting up your business, depending on the nature of your industry, you may have a lot of out goings to begin with. There are different kinds of leases / finance you can get which we will detail below. You can get 0% interest on some finance agreements, spread out payments to help with cash flow, tax relief on energy efficient equipment and can even have maintaining and servicing included.

2. What types of finance contracts are there? 

Hire Purchase. You will pay instalments and own the equipment at the end of the agreement.
Finance Lease. You will pay instalments but won’t own the equipment at the end of the lease. The rental company will sell the equipment at the end of the lease and you will receive a pre-agreed amount of the proceeds.
Operating Lease. You will pay lower instalments but won’t own the equipment at the end of the lease or get any proceeds from a third-party sale.

3. Do I have to add leased equipment to the balance sheet? 

If you buy or use hire purchase for equipment for your business, it will have to be added to the business’ balance sheet however if you use finance lease or an operating lease it may not. If your total payments, excluding maintenance and servicing, amount to less than 90% of the total market value of the piece of equipment it won’t need to be added to the balance sheet. Ask the leasing agent or your accountant for a valuation if you’re unsure.

4. What should I look for when leasing equipment for my business? 

Do you need to purchase consumables along with the equipment and how is this covered by your payments?
Check the age and authenticity of the equipment, ask for evidence in writing.
Even if you have no intention of buying find out what the market value of the piece is.
What maintenance and servicing are included in the deal? Does it include spare parts? Make sure you’re clear on the costs of these and they are stated separately on the contract.
Check the process if you get faulty equipment or it breaks down completely.
What are the possibilities for the structure of the payments, example a balloon payment at the end of the contract?
Be very specific with the requirements of the equipment you need and what kind of contract would work best for you. Get at least 4 quotes from different companies, 2 larger more well-known places and 2 lesser or local leasers. Know the market value of the equipment, new and second-hand and use this to evaluate the quotes given.