Business Grants

Business Grants

Everyone likes the idea of small business grants. Free money for your business has an everlasting appeal. The reality of obtaining a business grant is more like the quest for the holy grail, and often fraught with the perils of bureaucracy along the way.

Be under no illusion that it will take time and effort to search out and apply for any kind of grant.bizgrants
Grants are generally awarded by local, regional or national government. Sometimes (but much more rarely), they come from industry bodies, foundations, trusts and educational establishments.

Finding a small business grant is difficult because schemes normally have a limited amount of funding distributable within a definite time frame, they are normally targeted at local areas, with specific aims (e.g. urban regeneration) and change over time to reflect different objectives. Because they are aimed at different and ever changing target groups the amount of information available about them becomes layered and confusing.

Furthermore, it is unlikely that you will be allowed to use any granted funds for any purpose you wish, they nearly always are constructed with restrictive criteria. Perhaps the most common ones are:

Encouraging investment in areas of poor economic standing, including assistance for relocation, creation of jobs etc.
Agricultural, farming or fisheries assistance.
Aims of increasing overseas exports
Investment in new technologies or ‘state of the art’ plant and machinery
Research and Development

As well as the restrictive end use, there will be qualifying criteria which will depend upon the location of your business, its legal form, and the size of it. Almost always you will be expected to produce your business plan with any application and contribute a “matching element” of funding. Most often this is to invest an equal amount (50%) to what you are granted. Although the contribution you are expected to put in can be up to 85% in some cases

Small Business Financing

SmallBusinessFinancingSmall Business financing

All Small Business Financing requirements are fulfilled from one or more of 5 different sources.It usually takes the owner(s) of the business to invest their own capital, before any of the others can be made to happen.

1. Investment Capital from yourself, family or more formal investors such as business angels or shareholders.

2. Small Business Loans from any traditional financial lender – comes in a number of different formats.

3. A loan from a Peer to Peer lending organisation.

4. Proceeds from Small Business Start Up Grants or any of the other kinds of Small Business Grants

5. Profits of the business.

Key small business financing concepts

If you intend to use any funds raised for a long duration (e.g. purchase of property), then you should match funding to a source that will last the same duration (e.g. Commercial Mortage)
Aim to raise your sources of finance in a balanced way using a combination of business finance products and providers to reduce risk and avoid endangering the long term viability of the business
Your business plan (and your current trading performance) will help you determine the amount of funding you need, and where it should be applied.

It is important to look at your cash forecasts, and decide whether you will have enough resources, or whether you will need to raise more. Don’t forget to build in a contingency for unforeseen circumstances.

If you decide you need further finance, start looking well in advance. Not only does this give the impression that you are in control and organised (because you are!), it avoids the stress and ultimately loss of control should the business get into difficulty.

It is also possible for your business to be adequately financed, but be in difficulties as a result of poor short term access to cash.
The 5 major and escalating symptoms of insufficient liquidity in your business

  1. The bank balance is in a continuous trend of decline.
  2. The number of days it takes to collect money from Customers starts rising. Here’s how to compute debtor days
  3. You will be unable to pay suppliers you owe money to on time. Some of them might stop delivering supplies to you until you pay what you owe. This can cause severe operational problems. For example if you can’t pay for goods that are required to fulfil orders!
  4. In more chronic cases you will be struggling to pay essential creditors, such as wages tax and sales tax or VAT on time. These kind of creditors are governments, and will not accept this. At this stage your business may be in jeopardy.
  5. The end of the line is usually the inability to pay wages on time or if a supplier presents a court order to wind up your business.

The main difficulty if your business is in or gets to this situation is your loss of control as owner. If you recognise any of these symptoms in your business you must investigate and take action immediately. By having appropriate working capital management in place you can take preventative rather than corrective action.

The situation of inadequate liquidity is known as over trading. The causes can be as a result of negative events, such as continuing losses, the insolvency of a sizeable debtor, or over indebtedness, but they can also be caused by expanding too fast. Expanding too fast requires working capital to be added to the business. More than can be supplied by the profits of the business alone. Here’s how to compute the working capital ratio to establish how much you need.

Prevention is always better than cure, It is therefore best to install early warning systems by using your accounting software and management information reports to prevent the situation developing as far as this.

Calculate how fast your business can expand without the need for extra funding. And be sure to start sourcing extra finance if growth exceeds this limit.

Small Business Loans

SmallBizLoanMaximizing your application chances

Business owners in the U.S. and Canada use Commercial Finance Brokers to source their loans much more than other territories.

Whilst not as well known in other countries (In the UK for example, 70% of business owners go first to their bank – M&A March 2003), they are to be found if you look for them, and using one will be a great help in increasing your chances of finding a suitable loan, and in fact any other kind of small business financing

You may also want to consider a private business loan from family members, or seek funding from an angel investor (who would generally be more interested in equity funding). Though seldom used, these untapped sources are at least worth a try!
9 things you must do to maximize your chances of obtaining a small business loan

To get approval for your loan application, you must be able to meet the lending criteria set down. Some organisations are more risk averse than others, and will therefore have more stringent criteria. To vastly increase your chances of a successful funding application, you will need to present the following information.

  1. The reason for the loan. The lender will be looking for something that fits within the normal range and expertise of your business. The amount may cover a number of items, so you will need to cover each.
  2. The amount required, and the repayment term of the small business loan you want. (e.g. $10,000 term 5 years, payable quarterly).
  3. Details of how you will repay the amount borrowed. For example, “From the increase in profits of reduced running costs of the Whizzbang Go4It and ongoing business cash flow.
  4. Details of security you will be able to offer to the lender. This will act as reassurance for the lender. If you’re not prepared to put up some aspect of security, then why should they?
  5. You will need to include your business plan which will serve to answer essential questions relating to management capabilities, information about the market in which you operate, and the kind of business you are etc.
  6. 3 Years financial statements. You will need to present quality financial information from your small business book keeping software, preferably signed off by your accountant or tax advisor.
  7. Latest Set of Management accounts. Again produced from your accounting software.
  8. Accounts receivables (debtors) and payables (creditors) ageing reports.
  9. Principals financial statements. – Particularly required if some form of security is necessary.

If you are a new company, the emphasis is going to be on your business plan, and the security (also called collateral) you or your business can provide against the loan.

If you are currently relying on your accountant to provide you with the information outlined above, I recommend that you make a small investment in small business book keeping software such as kashflow.com. Accounting software will prepare the necessary reports from your data entries, and also helps you reduce the amount of time the accountant needs to prepare your statements, which should reduce their fees, more than paying for the investment.

You must take the time to practice presenting your business loan proposal to iron out any glitches. Practice on your colleagues and family (you never know, they might be so impressed, they’ll invest or lend!)

It will also help if you role play the lender and come up with as many objections to accepting the deal as possible. The more time you take the better your chances will be. (But Remember don’t fall into the analysis paralysis trap!)

One of the reasons why using Commercial Finance Brokers to find you a Small Business Loan is on the increase is that they are experts in packaging your request and searching out a lender that is interested in your kind of business.

They will save you the time and hassle of pulling all the information above together, leaving you to get on with running your business.

Check out the below video for further information.