Raising money for your business


There are any number of reasons why your business might benefit from additional funding, and there may be almost as many different ways of actually raising that money. Here are a few of the most common:

  • Bank overdrafts – these may have been a traditional way in which local banks helped local businesses, but times are probably changing. Banks may appear to be more reticent – as reflected in the size of any overdraft allowed and the interest you may have to pay. Remember, too, that an overdraft is repayable on demand;

  • Invoice financing – this relies on the simple principal of your invoices having a value even before they have been paid. You continue to issue invoices in the normal way, but copy them to a third party invoice-financing agency. The agency advances to you a large proportion (typically 95%) of the value of the invoices and you collect the remaining 5% directly. You remain responsible for your sales ledger and for the management of bad debts;

  • Enterprise Finance Guarantee – this is a government initiative designed to help those businesses lacking sufficient collateral to be able to get secured loans (which are generally for larger sums). The scheme operates by the government backing 75% of loans ranging from £10,000 up to £100,000. Repayment terms are between three months and ten years;

  • Angel investment – angel investors provide funding in return for a share in your business. In an effort to gauge the scale of this market, the government commissioned its first report on angel investment in July 2010;

  • Community Development Finance Initiative (CDFI) – as the name suggests, these schemes are restricted to social enterprises or micro-enterprises located in disadvantaged or regeneration areas;

  • Peer to peer funding – has developed as a way of attracting individual investors, or even a single investor, to lend money to your business and to receive interest in proportion to the amount advanced, as they might on any other loan;

  • Secured loans – these have been traditionally advanced, mainly by the banks, which take out security on the loan by way of a charge on some proportion of the company’s assets. These tend to be long-term loans and in many ways are similar to the mortgage by which you offer your home as security; and

  • Short-term loans – on the other hand, these are advances made for the much shorter term, typically for no longer than, say, 24 months. Amounts are generally in the range of £1,000 to £50,000. Here at Merchant Money we specialise in such funding for your business and offer a number of repayments options (such as our Low Start Loan). Our loans are all unsecured.

There are many different ways in which you might raise money for your business and the one you choose is likely to be determined by the nature of your business, the amount you wish to borrow, the period over which you wish to repay it, and of course the willingness of the lender to advance your company the finance.