What Financial options are avaliable from outside your business?
STEPHANIE CREASEY >
Associate SolicitorMon 9 September 2019
Growth is commonly one of the main reasons many businesses seek funding. External finance is often an option to consider, but is not a decision that should be taken without proper advice.
At Taylor Rose TTKW we work alongside other professionals to help you to make an informed decision about which funding is best suited to your business needs. Stephanie Creasey, an Associate Solicitor based in our Peterborough office, considers some of the key factors influencing a decision to obtain external funding.
As it suggests, external funding is sought from outside the business and can take many forms. Loans, overdrafts, trade credit, investments, grants or funds raised through the sale of shares are just some of the sources available.
External funding can be advantageous where there is a long term need for funding on a significant scale. Rather than using internal resources, by using external funds your business can continue to use its existing resources for other purposes which may be more of a short term, lower risk nature, to pay off debts or fund marketing campaigns for example. Further, the costs of a significant purchase such as new premises or equipment can be spread over a longer period and paid for in more manageable instalments, helping you to even out the cash flow position.
What is more, a business can often gain invaluable expert advice from those providing funding which it may not otherwise have access to. Investors, for example, may have been involved in other similar businesses and can share guidance, knowledge and skills with your management team to help your business go from strength to strength.
However, there are disadvantages to this type of funding and at the forefront of any business owner’s mind should be the business’ future sustainability and retention of control. Investors are likely to require a share in the ownership of your company in exchange for the funding. You may get the influx of cash you need, but as part of the agreement the investor will be allowed to have a share in the ownership and/or control of the company and vote on company decisions which may not be in line with your own vision.
In addition, you will have to identify the right source of funding for your business and, once you have done so, there will then be a requirement to provide some form of return on the funding provided through interest. You may also have to provide security over key assets such as equipment, machinery or property which can leave your business at risk if you fail to keep up with the terms of your finance arrangements, There will also be additional costs and expenses incurred in obtaining the funding in the first place – it is likely that any third party will want you to satisfy a number of conditions, provide a business plan and to pay their costs – for which you will need professional advice.
Always seek suitable advice from professional advisors when considering finance options. If you would like to gain further advice on your funding options, get in contact with me on Stephanie Creasey.
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