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Small business loans will “give hope to thousands”

New government loans announced for small businesses will “give hope to thousands” as they fight to survive the impact of the coronavirus pandemic.

That is the view of the Federation of Small Businesses, who welcomed Chancellor Rishi Sunak’s announcement of the micro loan scheme which provides loans of up to £25,000 with a 100 per cent government guarantee.

Making the announcement yesterday, the Chancellor said the bounce back loans – which are capped at 25 per cent of turnover and have a streamlined application process – will be available from Monday.

And FSB national chairman Mike Cherry said the announcement was vital for those firms not covered by the existing coronavirus loan scheme.

He said: “The decision by the Chancellor to listen to our recommendation will give hope to thousands.

“The headline terms will be hugely welcomed by the sole traders and micro businesses that make-up 95 per cent of the small business community.

“Removing the need to provide forecasts marks an important step forward – small firms cannot be expected to predict the future in this climate.”

Mr Cherry called on the government to ensure the delivery of the loans was administered correctly so help reached the right people in time. 

”From here, we need the right delivery,” he said. “The fast-track system must be established by next Monday with money delivered 24 hours after a successful application as promised.

“All those who have been declined a small Coronavirus Business Interruption Loan Scheme facility should now be written to with the offer to re-apply via this new system.

“Many small businesses have had to pay March and April’s payroll, on top of other overheads, with no revenue coming in at all. This announcement promises to change that fundamental lack of access to working capital.”

He continued: “In the long term, we need to protect the competition achieved in the small business lending market that so many have fought so hard to secure.

“At the end of this crisis, non-bank lenders are going to be key to economic recovery as part of a thriving small business finance market that does not just rely on the big five banks.

“Equally, the big banks must ensure they are in a position to facilitate a large a number of small business loans. Some of their systems are already creaking under the strain.”

The loan scheme was also welcomed by Business West, who represent the region’s Chambers of Commerce, but Gloucestershire director Ian Mean warned that the Chancellor’s statement to the House of Commons contained some less welcome news.

He said: “The good news will be very welcome by small businesses so worried about the delays experienced by many of them in applying for cash through the government’s much-heralded Coronavirus Business Intervention Loans Scheme.

“But there was good and grim news. The Chancellor told the Commons that ‘survey evidence suggests that a quarter of firms have stopped trading’.

“He made no amplification of that alarming figure – many of them might have just paused trading, but this figure must be of great concern for our economy.”

The new loan scheme is available for firms which existed on March 1 with money due to be in accounts around 24 hours after an application is approved.

Applications are short and can be submitted online from Monday with basic details to confirm a business is eligible with tax returns required in a small number of cases.

While the Government will cover interest and fees for the first 12 months, businesses will pay back the loan at what the Treasury describes as ‘very low’ interest rates over around five years.

Meanwhile, the Chancellor has dismissed calls from church leaders for companies that avoid UK taxes by routing profits through tax havens to be barred from receiving coronavirus support packages.

Former Archbishop of Canterbury Rowan Williams was among the senior clergy who called on the Government to follow Denmark, Poland and France in refusing to help companies registered in tax havens.

A spokesman for the Treasury said: “HMRC has robust tools to challenge businesses who avoid paying their fair share of tax.

“That is the right way to challenge avoidance, not by denying support to British workers who pay their taxes and would otherwise lose their jobs.”

By Rob Freeman

Source: Punchline Gloucester

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Businesses turn to alternative money trees as big bank lending stalls

Smaller businesses are turning to alternative ways of financing in much larger numbers than five years ago, as traditional lending flatlines, according to a new report.

Marketplace business lending, which used to be called peer-to-peer, is now providing more than £2 billion a year to British small and medium sized businesses (SMEs), the British Business Bank said.

It is a 374% rise since 2014, the year the bank was set up by the government.

Meanwhile equity finance, providing money in exchange for a stake, has jumped by 131% over the same period.

Since it was set up the Business Bank has provided support to success stories such as cybersecurity outfit Mimecast, and fintech firms Transferwise and Revolut.

Earlier this week Revolut announced it had raised another 500 million US dollars (£387 million), giving the business a valuation of around £4.3 billion.

But while alternative financing has boomed in the last five years, gross lending from major banks to smaller businesses has remained largely flat, growing just 1.2% in real terms.

Gross bank lending reached £56.7 billion last year.

In 2014 it was £53 billion.

Last year 52% of smaller businesses that wanted financing looked beyond the Big Five banks, according to the research.

There is evidence that the flatline in traditional lending is due to demand from businesses drying up, British Business Bank chief executive Keith Morgan told the PA news agency.

More than 70% of them say that they would be willing to forego some future growth rather than take more loans.

Mr Morgan said that small business confidence seems to have rebounded in recent months.

“We are seeing some indication that confidence has rebounded given the additional clarity that is now present with the outcome of the general election and the increased understanding of the course with respect to Europe,” Mr Morgan said.

However it is too early to say whether that will increase demand for finance, he added.

Business Minister Paul Scully said: “Finance for small businesses is essential to our goal of making the UK the best place in the world to start and grow a business.

“This report will shape our support for business leaders across the country, so they can drive innovation and growth.”

By August Graham

Source: Yahoo Finance UK

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Fears for SME retailers as banks cut lending

Bank lending to small and medium-sized retailers has fallen by 6% since the 2016 Brexit vote, while large retailers have benefitted from a 20% increase in lending.

New figures show that funds lent to SME retailers has dropped from £15.6bn to £14.7bn in the three years, accountants and business advisors, Moore. Funds borrowed by large businesses has increased from £31.5bn to £37.8bn during the same period.

In a statement, accountancy firm Moore said: “The figures suggest that some banks are favouring big businesses, [which] are typically seen as more able to repay any funds borrowed… With big retailers increasing their borrowing so aggressively, that means less finance for smaller retailers.

“As well as needing finance to see them through the current volatile trading conditions, SME retailers also need to invest to ensure their stores and overall offering remain contemporary. Without that investment, smaller retailers risk losing more ground to bigger competitors and to e-commerce.”

It also said smaller-sized businesses need funding to help prevent them from going into administration, with the number of retail insolvencies up 31% from 951 in 2016 to 1,252 on 30 September 2019.

Bridget Culverwell, director at Moore, added: “It is a real worry for smaller retailers if banks are treating them less favourably than larger retailers.

“With the final outcome of Brexit still uncertain, it is expected that banks will continue to be apprehensive to lend to the sector in the months ahead.

“Small retailers are still big employers. They occupy space in high streets where larger retailers are not present and often not interested in being present. If too many small retailers fail, then that leaves those parts of town centres with the highest level of vacant shops even emptier.”

BY KATIE IMMS

Source: Drapers

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Personal guarantees are turning 50% of SME owners off business loans, weakening Brexit preparations

In recent years, many banks in the UK have offered increasing support to British businesses through access to finance. However, many SME owners are rightly concerned about the prospect of using personal guarantees when securing access to funding.

Taking a different viewpoint on the matter, Purbeck Insurance Services has suggested that small business owners should not be deterred by personal guarantees, and instead should seek out ways they could dampen the risk.

In a survey carried out earlier this year on 500 small business owners and directors, Purbeck found that while a staggering 49% had never taken out any business finance, 29% of respondents had typically called on their bank overdraft to fund their business.

What types of business finance have you ever taken out?

I have never taken out any business finance 49.00%
Overdraft 29.00%
Unsecured business loan 16.00%
Commercial mortgage 10.40%
Asset finance 9.00%
Invoice finance/factoring 7.60%
Other loan secured by debenture or charge 5.20%

Furthermore, a significant 12% of small business owners claimed to have decided against using business loans to fund their organisations as they included a personal guarantee.

Todd Davison, director of Purbeck Insurance Services, explained: “Our findings suggest that many small business owners could be looking at external finance for the first time in readiness for Brexit. It’s important they seek independent advice and consider Personal Guarantee backed finance as part of their options as they can seriously reduce the risk of these types of loans.

“As well as taking Personal Guarantee Insurance, they can also share a Personal Guarantee with fellow directors of the business, and negotiate which part of the loan is covered.”

The company’s personal guarantee insurance is an annual insurance policy that provides SME directors with insurance in the event their business lender calls in the personal guarantee, provided by the directors as part of raising business finance.

In an effort to help mitigate risk for small business owners considering opting for a business loan including a personal guarantee, Purbeck offered several tips including:

Negotiate a time limit for the Guarantee and a cap on the amount;

Educate yourself about the risks, whether you can afford to take them and always seek legal support;

Consider splitting the Guarantee between directors;

Know where your responsibilities for the Guarantee begin and end – is it loan specific or does it cover all future loans that the lender may provide?

Remember that if you have signed a Personal Guarantee for another business loan they are cumulative;

Agree terms so that the lender seeks settlement from company’s assets before enforcing the Guarantee

Confirm all points of agreement intention and expectation in writing with the lender.

Consider Personal Guarantee insurance to protect against the risk that the Guarantee is called by a lender. This will offset any outstanding obligations called in under a Personal Guarantee.

Written by Miles Rogerson

Source: Asset Finance International

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UK SMEs overcome Brexit fears to seek investment for growth

The growth and funding ambitions of SMEs have strengthened during 2019 despite the uncertainty caused by Brexit negotiations.

According to a new report from asset-based lender Independent Growth Finance (IGF), almost three quarters (73%) of small businesses expect to see their revenues climb in the next 12 months, compared to 69% at the start of the year.

Of those seeking to raise funds to support growth, the average amount has also increased by 22%, or £250,000.

Three-quarters of businesses are looking to secure funds in the next 12 months. On average, they are seeking £1.4 million.

Most of this spending is earmarked for innovation with investment being poured into technology (45%) and product development (27%).

The survey found that 85% of respondents were open to switching their funding provider in exchange for more flexibility (35%), sector-specific expertise (32%) and 48-hour decision-making (26%).

John Onslow (pictured), chief executive officer of Independent Growth Finance, said: “It’s incredibly encouraging to see so many SMEs focused on the future. Making decisions that are best for them and their employees in an unpredictable landscape. This includes a greater willingness to switch funding providers to get the flexible funding they need, when they need it. We’re not surprised that our research shows three of the top five funding sources are alternative finance.”

Written by Miles Rogerson

Source: Asset Finance International

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SMEs are shunning traditional banks

ThinCats, the leading fintech lender to mid-sized SMEs, has today published new research highlighting a growing lending divide as younger, modern businesses move away from traditional lenders towards alternative finance providers.

For businesses less than ten years old, 32% call on their bank as the lender of first choice compared to seven-in-ten (71%) businesses over 35-years old. The younger businesses were also more likely to pick an alternative finance platform with more than one-in-five (23%) compared to 4% of the oldest SMEs.

Likewise, in businesses where decision makers were aged under 35, two-thirds (65%) said a traditional bank was not their first port of call for funding. This is in contrast to businesses with decision makers aged 55 and over, where it was just under one-third (30%). For these groups (under 35 decision makers) 22% said they would choose an alternative finance platform, while only 6% (over 55) said they would consider the option.

Sectors such as IT, telecoms and marketing, which are traditionally knowledge or service-based are those leading the way in moving towards alternative finance providers.

Damon Walford, Chief Development Officer, ThinCats, “The SME lending ecosystem is complicated. Changes in the economy, technology and how people work mean that traditional lending models are not meeting the needs of the modern economy by excluding thousands of SMEs from potential funding. Thankfully, it’s encouraging to see that smart minded entrepreneurs are switching to the growing number of non-bank lending alternatives.”

Traditionally, high-street bank lending focuses on asset-backed financing that requires SMEs to provide a physical asset (such as equipment or property) as collateral for a bank loan. Yet, for thousands of service-based companies with few tangible assets, traditional banking credit models often overlook the wider value of a business including the cash being generated.

The research, which surveyed 512 UK SMEs with between 10 and 249 employees, also shows 30% of SMEs who were rejected by their first-choice lender, stopped searching for external funding altogether. This suggests that many businesses, of whom 55% said high street banks were the first lender approached, are potentially giving up when there are suitable alternatives available.

Positively, appetite for lending remains high with more than a quarter of businesses (27%) saying they applied for funding within the last year.

Walford added, “Cashflow lending is a solution for thousands of SMEs, where lenders look at the underlying cash flow generated by the business. For businesses who are service-focused like IT, telecoms and marketing companies it works perfectly. We’ve found that many of these businesses are also more willing to share their accounting data, opening them up to financial providers beyond their banks.

“I hope this message gets out to more SMEs and would encourage them to plug into the growing network of accountants and commercial finance advisers now advising on alternative finance options. It’s critical that UK entrepreneurs can access modern funding solutions for a modern economy.”

BY PETER SMYTH

Source: London Loves Business

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10 Common Finance Hurdles UK SMEs Face (And How To Overcome Them)

If you run an SME, you probably are familiar with these all too well. But it’s easier to overcome these finance hurdles than you think!

First of all, let us begin by admitting and acknowledging the harsh reality. The UK economy has been through a constant grind of speculation, debate and uncertainty over the past few years, all thanks to Brexit. Without commenting on the issue, we would just like to mention that not all SMEs are happy about the way things have been unfolding. Nearly 40% of UK SMEs think that Brexit – if and when it actually happens – will leave them worse off in terms of financing and sales. That’s a very serious trend.

However, that’s only a part of the finance riddle. There are quite a few non-seasonal hurdles that SMEs have to face while applying for and getting commercial finance. Here are our picks (and some advice from our experts on how you can easily overcome them).

1. The Personal Credit Vs Commercial Finance Conundrum

This is by far the most common confusion we’ve seen SMEs struggle with. Much of this has to do with the fact that most SMEs are built ground-up without any solid plan for expansion. This, however understandable, is not the right approach. When you start a business, it’s advisable to treat it like a business. Sure, you can use your personal credit cards or even mortgage your home – but you need to know where to draw the line.

Personal loans tend to reduce your creditworthiness, making things difficult for when you want to get a business loan. The best way to overcome this conundrum is to separate personal and business finances as strictly as you can. Your personal creditworthiness should be a credit to your business – not a burden.

2. Bad Credit

This is the most obvious hurdle. If you have bad credit, you’re going to struggle to get a good deal (or any deal, for that matter). It’s important to know what impacts your credit in addition to the usual do’s and don’ts.

We’d like to note here that having bad credit doesn’t spell the end of the road by any stretch of imagination. We, at Commercial Finance Network, regularly broker bad credit loans for many otherwise successful SMEs. You can read more about our adverse credit mortgage services here.

3. No Credit History

Not many SMEs take business credit seriously, thanks mainly to the fact that most operate as sole traders. Quite naturally, it’s not very common for SMEs in the UK to have business credit history.

The easiest way to establish business credit history (you’ll need it when you want to apply for high-end commercial finance products) is to register your business and start trading regularly. Most companies, just by trading actively, are able to establish various credit tracks that help towards their credit history. To speed up the process, you can also use easy-to-access finance products like credit lines, business credit cards, overdrafts and so forth. Short-term finance products like bridging loans and invoice finance can also be very helpful in building a good credit score.

4. Multiple Applications

As is the case with personal credit, your chances of getting approved for a commercial finance product may get severely hampered by multiple applications. If you overestimate your creditworthiness and have half a dozen applications turned down, it’s almost always going to leave a dent in your business credit history.

This, however, is easily avoidable. If you want to directly work with lenders, make sure you are familiar with the lender’s expertise, expectations and track record. If not, you can send your applications through a reputed whole of market broker like Commercial Finance Network to improve your chances of getting an affordable and customised finance deal.

5. Going After Incompatible/Unsuitable Products

Another easy to avoid problem.

If you’re in need of commercial finance, make sure you know what exactly it is that you need. Specialty finance products are always more affordable than blanket packages. For example, many SMEs apply for a generic business loan to cover all sorts of expenses, instead of going for specialty, focussed loans. This not only makes things more expensive; it also increases the chance of having their application rejected.

An easy fix is to know what commercial finance products are available out there, and how you can best customise them to your needs.

6. Not Making The Right Points

This shouldn’t be a point of discussion, but we’ve seen too many SMEs fail to paint themselves in good light.

If you want to work with specialty lenders (like the ones we have on our panel), you will need to make sure that you know your business inside out. And by business we don’t just mean your day to day operations. You need to be able to demonstrate how you are planning to fuel the growth and overcome the competition. A detailed business plan that touches on all these point (and more) will always be helpful in getting lenders on board.

7. Weak Cashflow

This doesn’t and shouldn’t apply to every SME out there. However, you need to ensure that the cashflow numbers are always as healthy as possible.

Lenders, by and large, look for affirmative signs that tell them that you’ll settle the dues. And there’s no better sign of surety than strong cashflow numbers month after month.

8. Short On Security

Many commercial finance products require you to attach a security. It could range from personal guarantees and shares to properties and even vehicles.

Some specialty products (a good example is that of invoice financing) may not work at all without an inherent security. So, before you apply, know how these products work and what sort of security might be needed to get your application through.

9. No Trading History

Many SMEs try to apply for commercial finance right after they start trading. This is a rather hasty approach, because at that point, no SME can show any sign of credibility – no credit history, no volume of transactions and no track record.

To avoid this, we advise our customers to establish a long-enough trading history (typically six months or longer).

10. Tie All The Loose Ends

If your business has availed any loans in the past – however small the amounts – make sure you pay them off at your earliest, before you apply for commercial finance. If you aren’t in a position to make these payments right away, make sure these loans are represented correctly on your credit file, so that lenders can understand why you needed them and how you’re going to pay those back.

Commercial finance can appear daunting – but trust us, it’s anything but. With specialist lenders who know what your business needs, we’ve got you covered. To request more information or to request a call back, please call us on 03303 112 646. You can also get in touch with us here.

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Thousands of UK SMEs seeking finance to improve cash flow

Thousands of UK companies plan to use finance to improve their cash flow in the future, according to new research.

Analysis by Purbeck Insurance Services found that 28% of SME executives interviewed said they were turning to external funders, including to cope with late payments.

Todd Davison, director at Purbeck Insurance Services, explained: “Cash flow is the life blood of any small business. But for a whole variety of reasons, not least the current economic uncertainty, an SME business owner may find themselves looking at unpaid customer invoices, bills from suppliers and wage rolls, and wonder where the money is going to come from.

“Small businesses are owed billions in late payments; whole supply chains are affected and end up borrowing to fill the gap while they wait to get paid.”

However, he warned that using finance to resolve cash flow problems is a “double-edged sword” and business owners should first consider operational changes that might deal with short-term problems.

Davison added: “It would be prudent for the business to take the time to review its financial situation as a whole. In doing so, the owner may find some changes can reduce the need for, or at least the amount of, additional finance.”

Strategies could include restructuring current finance arrangements, reviewing credit terms to suppliers, outsourcing the late payment debt, improvement stock control or looking at alternative sources of income such as renting office or warehouse space.

Other reasons for sourcing finance included acquiring equipment (27% of respondents), supporting a business acquisition (10%), R&D (9%) or recruitment (7%).

Davison recommended that if business owners are providing personal guarantees to secure loans, it is important to consider insurance to protect their personal assets should they encounter repayment problems.

Written by Miles Rogerson

Source: Asset Finance International

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Government scheme to help small businesses ‘at risk of failure’

The CEO of online lending company Iwoca has written to the UK Chancellor warning that a government scheme to help small businesses access funding is “at risk of failure.”

Christoph Rieche wrote to Chancellor Philip Hammond on Thursday calling for a new task force to help repair the flagging Bank Referral Scheme.

The Bank Referral Scheme (BRS) was set up in November 2016 to help small and medium sized businesses (SMEs) access to loans and other financing. It came in response to a decline in lending to smaller businesses after the 2008 financial crisis.

Under the scheme, a bank that rejects an SME loan application must refer the business to an online platform. These platforms connect the business to fintech companies that might be able to offer them money.

Over 19,000 SMEs have been referred since the scheme was set up. However, Treasury figures show that only around 900 loans have been written. Iwoca said it is responsible for 55% of them.

“I am writing to you today because one of the cornerstone initiatives designed to help make finance more available to small businesses is at risk of failure,” Rieche wrote in his letter to the Chancellor, which was seen by Yahoo Finance UK. “Launched in 2016, the Bank Referral Scheme (BRS) has failed to deliver any meaningful impact.”

Rieche calls for a new task force, staffed by industry representatives and government staffers, to help “unlock its full potential.” Suggestions include making small businesses more aware of the scheme and using technology to make it easier to access.

“The BRS scheme remains one of the government’s potentially most transformational initiatives when it comes to making finance available to businesses,” Rieche wrote. “However, as with many ambitious targets, it does not come without complexity and more needs to be done to overcome them.

“We strongly believe this problem can be solved if banks, FinTechs and policymakers join forces.”

Rieche set up Iwoca in 2011. It offers online loans of up to £200,000 to small businesses, as well as online overdraft facilities. Iwoca has lent to over 25,000 businesses to date and the company announced in February it had raised over £150m in debt and equity funding.

By Oscar Williams-Grut

Source: Yahoo

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6 ways to ensure your SME gets funding

Over half of SMEs do not obtain the funding they need to survive, says Giles Fuchs.

It’s estimated that more than 100,000 businesses in the UK are looking for funding at any one time. Yet only a small percentage will secure sufficient funding to enable them to grow and expand into credible businesses that have a real market impact.

Clearly, there’s a problem and it is contributing to the failure of as many as nine in 10 early-stage businesses.

For many young companies, securing the scale-up funding they need is still challenging. The UK has a great reputation for supporting start-ups, it’s ranked third by the OECD, but only 13th for its ability to help companies secure the funding they need to become viable.

Also, the prospect of Brexit currently casts a shadow over the UK economy. Even though the Government has recently pledged to provide up to £200m of additional investment in UK venture capital and growth finance in 2019-20 if the European Investment Bank withdraws its support after Brexit, it is still a small percentage of the funding needed. Recent research from small businesses finance provider Liberis, revealed that over half of UK SMEs are still unable to access the funding they need to grow.

UK SMEs contribute some £200bn to the UK economy, so ensuring they can access the funding they need is vital. In the current uncertain climate, to try and secure such backing, whether from private sources, such as high-net worth individuals or family offices, or institutions, it has never been more important for early-stage companies to plan properly and set out a compelling vision.

Develop a proper plan

One of the most common reasons that early-stage businesses fail to raise further funding is a lack of proper planning. Typically, they have grown with less regard for proper structure and process and more emphasis on entrepreneurial energy and drive. However, to secure serious funding from credible investors, management teams need to put together a comprehensive plan which identifies the type of investor they are targeting, best timing for the approach, the quantum of funding sought, and how the company will cope with the rigour of the questions that investors will ask.

Don’t be shy to show your passion

Investors are more likely to back a business if it’s something they’re inspired by, so be passionate about your company and others will buy into it. Remember, you will be one of hundreds if not thousands of businesses your potential investors will be considering, so bringing enthusiasm and excitement to your pitches and meetings will help you stand out. It will help engage investors and help persuade them that you are genuinely creating a business worth backing. Retaining the passion that first prompted you to set up your business could be key in unlocking the funding to help it grow.

Create a compelling narrative

Given young companies are at an early stage in their growth, they will most likely not have delivered substantial commercial success. So, it’s important that you create a compelling narrative for the company as that is what investors will buy in to and will persuade them to back a business. It’s important to have a clear, concise proposition, which outlines the market potential articulately – and why someone would want to invest in it.

Demonstrate the growth prospects

Showcasing your strategy and proposition is the starting point but practically demonstrating the growth potential of the business is crucial. Anchoring your vision in a clear business plan that outlines in workable, pragmatic steps how the company is going to secure its growth will be what investors are expecting.

Have a strong management team

Having a strong management team that investors can see is capable of delivering on the vision, strategy and business plan that you have put together is essential. Investors might be excited by your plans, but most are hard headed and want to know who will be responsible for delivering on these plans. If you can’t show that you have the management bandwidth in place, then you will struggle to secure funding.

Ensure the timing is right

This is the most intangible of all the factors outlined, but timing really is key. It’s important to only consider seeking investment when the business is in a strong enough position and is performing well enough to support this. It’s vital that your company has the structures in place, the systems, the human resources and IT support to provide a proper foundation for your fundraise. You can still go for funding without all this being in place, however, you will increase your chances of success immeasurably if this has all been thought through and implemented.

Seeking funding may seem daunting, the hurdles may seem high, even insurmountable, but treat this exercise with the same rigour and focus as you have to take your business this far, and it is more than likely that you will be rewarded.

Source: SME Web