Say no to a loan: alternative methods to raise funding for business buyers

Money matters are always a topic of conversation when you’re a business owner – regardless of whether you’re new to the industry, a veteran, or simply an interested individual thinking about purchasing one. The business of finances is central to any company, as it can usually be the maker or breaker in a decision to buy a company, and so it is in your own best interests to ensure your financial affairs are in order or have been discussed. From the act of purchasing, to getting it off the ground and later to scaling the business, finances will be the undercurrent in all decision-making.

So, you’re interested in buying a business. But how does one go about acquiring the right funds? There are options beyond just walking into a bank and requesting a loan, so consider the following alternative routes to secure financing for your new venture.

Personal finances
An obvious choice, and perhaps the most straightforward option you have. There are plenty of bonuses attached to using your personal finances, which may include savings, inheritance money or even retirement funds, to finance your business; from the lack of interest to be paid on the money, to the fact that there are no obligations to anyone but yourself. Or, should you choose to receive monetary support from family and friends, the terms and conditions can be agreed upon privately.

Beware, however, of the risks attached to using personal finances. It is likely that once you've exhausted your personal finances, there will be nothing left. Also, if you are looking at dipping into retirement funds, there may be tax-related issues attached to withdrawing the money prematurely, and so it is wise to seek advice from an expert before doing anything too hasty.

Grant applications
This is an option that goes beyond using your personal finances. If you have a viable business plan, then you have potential to secure government-backed grants and funds, designed specifically to boost budding entrepreneurs. There are a number of options you could explore under the British Business Financial Services’ Enterprise Guarantee Scheme.

In this scheme, borrowers are required to pay back 100 per cent of the loan, but with a government guarantee, 75 per cent of its value in return will be put towards an annual premium that aids entrepreneurs in paying for the plan. Large sums of money can be borrowed over a 10-year period, and are lent by a number of high-street banks.

Information of the various schemes can be found on the government website, but interested individuals should look out for the Enterprise Finance Guarantee (EFG), the Regional Growth Fund (RGF), loans particularly for start-up companies, UK Export Finance (UKEF) and business finance partnerships.

External investment
If it’s not your own circle of finances, or from the government, it’s time to look towards private investors. Primarily, angel investors and venture capitalists.

An angel investor will invest their private funds into small businesses in exchange for shares. As they normally fund small companies in early stages, one benefit of angel investors is that they offer a lot of mentorship and advice, especially with regards to launching and expanding once the business is up and running. Venture capitalists operate in a similar fashion, but prefer tech-based companies with high risks and higher pay-outs, and therefore a higher percentage of the ownership.

An alternative to this is to crowdfunding – you may have seen campaigns of this on popular platforms like Kickstarter, Indiegogo and Crowdfunder. With this type of funding, you appeal to the mass public to gain funds to support your business from the ground-up. Crowdfunding is also available for second-stage funding.

As you can see, there are a number of avenues you can explore to fund a business, not just through bank loans. In any event, the important aspect of acquiring funding is to appeal to funding benefactors through well-researched proposals and business plans; after all, nobody likes to throw money at a potentially unsuccessful venture. You need to also consider your financial situation in terms of credit ratings, collateral and how much of your information you wish to share to the public.