New year tips for SMEs and choosing the right funding

As the new year begins, small and medium-sized enterprises (SMEs) often focus on growth and expansion. One significant aspect of this is securing funding to support these business plans. While traditional bank loans may seem like the go-to option, alternative funding methods have gained significant popularity among SMEs in recent years. Let’s explore some new year's tips to consider when seeking funding.

Assess your business needs

Before diving into any funding options, SMES should assess their specific financial needs.  Ask yourself:

• Will funding increase revenue and profit?
• How much capital do you need?
• Can the business comfortably sustain the repayments?
• What is the timeline for the required funding?

Also, consider factors like whether the repayment terms align with or suit your business model.  Having clear answers to these questions will help you choose the most suitable funding option.

Maintain a Strong Business Plan or rationale for the funding

Having a strong and detailed plan is crucial when seeking funding. Lenders want to understand your business's growth potential, competitive advantage, and revenue projections. Develop a comprehensive plan that showcases your expertise, market research, and financial projections to increase your chances of securing funding.

Research alternative funding solutions

Chances are you already have some sort of bank funding in the form of an overdraft or term loan. Banks struggle to increase funding facilities due to their need for additional security. Over and above this, banks also take very long to grant credit. SMEs should explore alternative funding options that provide fast and flexible solutions to best fit their specific needs. Some popular alternative funding methods include:

• MCA: A short-term unsecured loan that can be paid out to you within 1 day of applying.
• Trade Finance: Financing for working capital requirements based on importing and exporting goods.
• Invoice Financing: Convert outstanding invoices into immediate cash by selling them to a third party at a discount.
• Asset Finance: Securing a loan using company assets, or acquiring a new asset and financing the asset over a 3 to 5-year period.

 Consider the Pros and Cons:

Each funding option has its own set of advantages and disadvantages. Take the time to carefully evaluate these factors, considering aspects such as interest rates, repayment terms, flexibility, and speed. Assessing pros and cons will help you make an informed decision that aligns with your long-term business goals.

 Build and Leverage Relationships

Networking and building relationships with lenders can positively impact your funding journey. Attend industry events where you can meet potential funders, participate in online communities, and seek recommendations from others who have successfully secured funding. Choose lenders that provide a basket of products so that they can support your funding requirements as your business grows.

Prepare for Due Diligence

Be prepared for potential investors or lenders to scrutinise your business. This includes reviewing your financial statements, tax returns, legal documents, and other relevant paperwork. Keep all your documents well-organized and easily accessible.

Optimize Your Credit Score

A good credit score can be a deciding factor for many lenders. Make sure to:

• Pay your bills on time.
• Keep consumer loans to a minimum.
• Do not apply to many lenders at once.
• Check your credit report for errors.

Focus on ROI

When evaluating funding options, consider the return on investment (ROI). Funding should not be about keeping the business afloat but about growth and profitability in the long term.

Stay Informed on Market Trends

Keep up to date with the latest trends in your industry and the broader economic environment. This knowledge can help you decide when and how to seek funding.

Seek Expert Advice

Feel free to consult financial advisors or experienced entrepreneurs. Their insights can be invaluable in navigating the complex world of business financing.

As SMEs embark on their journey to secure funding in the new year, exploring beyond traditional financing options is essential. Alternative funding methods provide SMEs with viable alternatives to consider. By assessing your business needs, researching available options, and building relationships with lenders, SMEs can increase their chances of finding the perfect funding solution for their growth plans.

Remember, careful planning and due diligence will go a long way in securing the necessary funds to make 2024 a successful year for your business.