How to raise finance for your business

March 5, 2024
Andrew Knowles

There are a wide range of options available when you're looking to raise finance for your business. Here are some of the most common methods we see firms using today.

Before considering any of these alternatives, it’s important to be clear about both your needs and your expectations. The most appropriate solution could be quite different if you need funds to cover a short-term crisis, such as a major tax bill, versus borrowing to invest in strategic growth.

Each form of finance comes with different costs, repayment terms and degrees of flexibility. This guide will help you to think through your options, but we recommend you speak with one of our finance specialists for guidance specific to your needs.

Bank overdraft

Many banks offer the capability to borrow money from your current account. This can be incredibly convenient when you have a short-term gap in your cashflow, and can prevent the embarrassment of suddenly being unable to pay smaller bills.

The flexibility of an overdraft comes at a price, although the flexible nature means you only need to borrow exactly what you require. However, you must apply for the facility and most banks are relatively cautious about granting approval. You’ll need to demonstrate that your business will be in a position to clear the borrowing. 

The bank also retains the right to cancel your overdraft at any time and demand settlement.

Unlock the debt in your sales ledger

Invoice finance, or invoice discounting or factoring, can be a very effective way to raise finance for your business. It offers a number of advantages, the first of which being that you’re only borrowing money that you’ve already earned - so you can be confident that you will be able to repay it..

Invoice finance works by releasing cash that’s tied up in your sales ledger. There can be a 30, 60 or even 90-day delay between you raising an invoice and being paid. Having the money earlier can make a huge difference to your cashflow and that’s what invoice finance does.

You raise the invoice and the finance provider pays you almost immediately, improving your cashflow. There’s a cost to such an arrangement, but it’s flexible and your finance provider will often help you collect the debt from your customer.

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Taking out a bank loan

Unlike an overdraft or invoice finance, a bank loan is a less flexible method of raising finance for your business. If the bank agrees to the loan, you’re given a period of time in which to repay it, often a number of months or years. 

A bank loan gives you the benefit of being easy to plan for, because you know exactly what you’re paying out every month. Your bank will want to know what you plan to do with the funds you borrow, and they’re seeking confidence that you can repay over the agreed term.

Your bank is likely to ask for a personal guarantee or some other form of security to ensure they will get their money back. 

Borrow against an asset

You can raise finance for your business by borrowing against an asset that it owns. Typically, this asset is land, property or valuable equipment. The asset has a resale value on the open market, meaning the lender could sell it, should they need to.

Asset-based finance is common in many industries, because it effectively unlocks cash that is otherwise tied up in assets. That capital can be put to work, helping the business generate additional income.

Assets can also be a route to improved cashflow, through the grants and other incentives that can be available to assist with their purchase.

Loan from friends, family or an investor

There are a host of individuals and groups who are open to providing finance for business. Indeed, some actively seek it. This can be a very cost-effective approach to raising funds, but any such arrangement should not be undertaken lightly.

Most lenders will want solid assurance of your future capability to repay the loan, meaning you’ll need to put together some clear projections about future income and costs. Where your relationship with the lender is more personal, such as friends and family, they may not be so demanding, but you are putting personal relationships at risk if your finances don’t go as planned.

How we can help

We’ve worked with many businesses seeking to raise finance, helping a large number to set up a facility that’s right for their circumstances. Many business owners speak highly of the service and support we have provided.

If you’re looking at ways to raise finance for your business, talk to one of our team. Get in touch today to discuss your options.

Jamie Davies
Managing Director

As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients. 

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Disclaimer: Spark Finance Ltd (Registered office - 18 John Stow House, London, England, EC3A 7JB, Registered Number 10128297) helps UK firms access business finance. Spark is a credit broker, not a lender. Any quotes provided are for information purposes only and subject to status and separate lender terms and conditions. Applicants must be aged 18 and over.  Guarantees and Indemnities may be required.  Spark Finance may receive commission from lenders.  Spark Finance Ltd is authorised and regulated by the Financial Conduct Authority in the UK (FRN 958123).
© Spark Finance Ltd is authorised and regulated by the Financial Conduct Authority (FCA) in the UK. Their reference number is 958123, and you can use that to find them on the FCA register.