Securing finance for your SME can be a challenging and, at times, very confusing process, mainly because there are so many different types to choose from.
Whether you are opting for a traditional bank loan or are choosing to go for an alternative type of finance, ensure that you always make the right decision by checking out our guide to the main differences between the types of finances available to you, including the merits and drawbacks of the ones that you are considering.
Traditional bank loans
Banks are the largest small business lenders and are also the first thing that most businesses think of when it comes to securing finance for their SME. Bank loans can be an effective source of finance in the sense that they offer very low, fixed interest rates along with predictable monthly spending, making it much easier for you to manage your money on a day to day basis.
Sounds good, right? Well, unfortunately bank loans do come with their downsides that include lengthy paperwork and a longer waiting time to secure the money, meaning it’s not a particularly good option if you need funding fast.
Venture capital funding
If a venture capitalist believes that a business has potential and can also recognise a unique selling point or competitive advantage, it will choose to invest money in it. While a venture capitalist is unlikely to get involved in the day-to-day running of a business, what they can do is help the business to focus its strategy. While there are a number of merits of this type of finance, it also comes with a number of drawbacks. Firstly, it can be a very costly and time-consuming process. Your business will also incur legal fees whether an investment is secured or not.
Crowdfunding, also known as P2P or Peer-to-Peer Lending
This is becoming an increasingly popular way for businesses to obtain funding and is essentially when companies are connected with thousands of investors, some of whom may either be current or future customers. Raising equity finance in this way through internet-based crowdfunding platforms can be an alternative to seeking angel or VC finance through more traditional routes for start-up, early-stage and growth companies.
Pay as you trade finance
Pay as you trade finance is a good option for any businesses that have a high volume of customer card payments and transactions such as firms working in the retail and hospitality sector. This type of finance option will improve your cash flow because rather than having restrictive monthly payment obligations, you pay a percentage of what you earn.
If you need to secure funding for your SME startup or to facilitate the growth of your more established company, get in touch with GIC Capital today to find out how we can help you reach your full potential.