Taj Accountants prides itself on being entrepreneurs and small businesses first choice in receiving financial support. In an effort to support entrepreneurs on their journey to being a successful business owner we have compiled a list of various financing methods that can help develop an already started business or help get a startup business off the ground. 

Peer to Peer Lending 

Peer to Peer lending is a process in which business or individuals partake in financing without involving a financial institution as an intermediary. This most commonly takes place via online platforms that match lenders and borrowers who have similar financial needs. Individuals looking to finance their ventures use this method inorder to avoid financial institution intervention and prefer a closer relationship amongst the borrower and lender. Something to keep in mind  when partaking in peer to peer lending is the comparable risk that comes with working directly with the lender or/ borrow. Such risk that would be minimised by the use of financial institutions in a regular loan process. You are still required to submit financial records, go through a credit check and have a trading record inorder to proceed. The upside is you will receive an answer to whether you were approved or not in as fast as two days. This being the UK’s number one choice in alternative financing which is regulated by the Financial Conduct Authority (FCA). 

Startup Loans 

Startup loans are a great opportunity for small businesses and startups that have been operating for less than 24 months to receive financial funding. 

The British Business Bank offers advice, loans and mentoring for entrepreneurs within the UK. This fully funded government loan allows for every partner within a business to apply for £25,000 and a maximum of £100,00 per business. These loans have a 1 to 5 year repayment contract and a fixed interest rate of 6% p.a. Those who partake in this loan receive up to 12 months of free mentoring and business exclusives to help with growing their business. Unlike other loans, there is no fee involved in early repayments. 

Traditional Bank Loan

The most commonly used form of financing is acquiring a bank loan. Bank loans are mostly  utilised in medium to long term financing and are best used in large capital expenditures such as hiring more employees, technology, purchasing new facilities and machinery. 

These loans have become more difficult to attain due to the credit limits needed to be approved. Along with credit, businesses must secure the loan by providing credible forms of collateral to ensure payments will be made. In the case of a business startups, the entrepreneur may give a personal guarantee as a form of security. Based on the information given from your business will determine the repayment cycle (may vary from 3,5 to 10 years), timing and the amount of repayments. 

Banks will also require up to date financial records of your balance sheet, income statement and cash flow. This process may be overwhelming and tedious if done without the use of an accountant. Taj accountants provide one on one services to ensure statements are up to date and available for when it is needed. 

Asset Based Finance 

Asset Based Financing is a process in which businesses use collateral to free-much needed cash flow for their business needs. This form of debt financing is secured by the business assets but is not limited to items such as stock, inventory, real property, intellectual property, brands, plant and machinery. The money is offered in a form of line of credit that is available at any time for business use and is to be paid back once funds are available. 

A type of asset lending that startups and small businesses tend to use most frequently is Invoice Financing. Invoice Financing allows businesses to receive an advance on its earnings without jeopardizing their equity by selling products and services on credit to make money against unpaid invoices. 

Overdraft

Overdrafting allows businesses to inquire about short term debt that allows them to spend more than what they currently have. Banks commonly offer two forms of overdraft; Arranged Overdraft and Unarranged Overdraft. Arranged Overdraft  is a mutually agreed upon spending limit that is allowed to be used through normal payment methods. Unarranged Overdraft is when a business spends more than what they have in their accounts that has not been agreed upon in advance with the bank or having spent more than the given limit. Businesses may acquire fees due to overdrafting their account and not communicating promptly and properly with the bank. Interest rates and fees vary based on the bank. Some banks offer interest free or free-free overdrafts between £100-£300. This method should only be used as a last resort when a business has exhausted all other possible financing options and has succumbed to overdrafts. Having a dedicated accountant analyse and secure that your accounts are where they need to be is a crucial part of any profitable business. Visit an accountant in London for more information on the various products and services we provide. Being an asset to small business success is a main priority at Taj Accountants!

FAQ’S

Who is a Lender and who is a borrower?

A lender is a person and or entity that is providing the cash to a person, group or business on the basis of a contract that can include, interest, pay period, payment cycles and more. The borrower is the person, group, and or business that is asking for a sum of money on the basis of a contract. This contact is to be understood and agreed upon by both parties in order to ensure good ethical business procedures. 

What is a loan?

A loan is something that is borrowed, typically an amount of money that usually has terms of interest and repayment.