7 tips on how to raise £100,000 in today’s economy

A recent report by the National Association of Commercial Finance Brokers shows commercial lending is down 60% year-on-year compared to 2008. The worst hit areas are commercial mortgages (-51%), buy to let mortgages (-87%) and bridging loans (-77%).

In fact all forms of commercial lending are down apart from invoice finance, which has been the saving grace for some businesses. Invoice finance has grown 20% compared to 2008, showing lenders still have an appetite for this form of finance.

Raising finance for a business can be tough in today’s economy, but that doesn’t stop the need for funding in order to start, grow or even sustain business activity.

With all this doom and gloom around us the question still remains the same – how do you raise money in today’s economy? To help answer this question we’ve put together a few options you could explore to raise £100,000.

Option 1 – Family and friends
Borrowing money from family and friends is typically the cheapest and most flexible way of raising money for a business. People who borrow money by these means typically accrue less debt and are more prudent as they only borrow what they need.

However, there are potential pitfalls in borrowing money from friends and family. What happens if the business doesn’t go well, you fall behind on repayments or the person lending you the money wants to get involved in the day to day running of the company? The last thing you want to do is fall out with friends and family.

Option 2 – Enterprise finance guarantee (EFG)
The EFG is a scheme setup by the government to support businesses requiring finance but do not have the collateral necessary to secure funding. To combat this problem the government will back 75% of the loan.

You can borrow between £10k-£100k, with repayment terms of between 3-10 years.

The scheme is also suitable for both startup and well established businesses, you just need to ensure you have a solid business plan and budget to demonstrate you can repay the loan.

To find out more you should contact your local bank who will be able to talk you through the scheme and advise you on whether you qualify.

Option 3 – Release funds from unpaid invoices
Over 1m businesses in the UK are now affected by the late payment of invoices. With a lack of cash flow you could find business growth is being hindered and at worst threatening the future of the company.

Using invoice finance you could release up to 90% of the cash tied up in your sales ledger, with the cash typically made available to you within 24 hours of raising invoices.

There are over 20 lenders in the market so you are sure to be able to find one who could provide you with the finance to help get your business back on track and help fuel the growth of the business.

You could be eligible to use invoice finance if you raise invoices to other businesses and your projected turnover for the next twelve months is over £50,000.

Option 4 – Refinance property
Although commercial mortgage lending in the UK has been way down compared to 2008, there are signs the market is picking back up. There could be an opportunity for you to release cash which is tied up in the value of your property.

A quick phone call to your local independent mortgage broker will give you an indication on how much cash you could raise against your property value.

Option 5 – Asset based lending
Using asset based lending you could release cash tied up in your business assets. This could include cash tied up in equipment, property and your sales ledger, i.e. your debtor book.

Asset based lending is one of the few forms of commercial finance which has shown any growth during the recession. This is due to the lenders opting to lend money secured against assets which have a resale value, providing lenders with the necessary collateral.

Option 6 – Bank overdraft
One of the most common forms of finance for a new and growing business is a bank overdraft. Funding a business in this manor though has a few disadvantages:

1. You could be given an insufficient overdraft which doesn’t allow you to operate
2. Can be recalled at any time
3. Can be an inflexible way to borrow money.

Option 7 – Angel Investor
An Angel Investor is a person who invests in start-ups in exchange for equity in the company. In addition to providing finance the investor could also provide ongoing advice and support, for example introducing you to their contacts to help fuel business growth.

Angel Investors act as both individuals and also in investor groups, each pooling their cash, resource and contacts. The British Business Angels Association would be a good place to start if you would like to explore this as an option.

To secure finance from an Angel Investor you should have a solid business plan, knowledge of your target market and a good pitch. We’ve all seen what happens in the BBC’s Dragons Den when these requirements are neglected.