If you run a small or medium-sized business (SMB), you know just how important it is to access capital to scale sustainably and maintain healthy cash flow.
In 2024, you have various options for how you can access capital for business financing, which range from traditional loans to newer initiatives such as crowdfunding.
In this blog post, you’ll learn about five reliable ways you can access capital in 2024 and the ins and outs of each option.
1. Traditional Bank Loans
While it may not be the most glamorous option, traditional bank loans remain one of the most popular ways to access capital as an SMB for a reason. In 2022, the nominal gross lending was the second highest on record, coming in at a total sum of £35.5bn.
(Source: British Business Bank)
In most cases, taking out a bank loan means going through an application process and, once approved, receiving a lump sum that you’ll have to pay back to the bank over an agreed-upon period of time.
Benefits
● Predictable cash injection – If you’re looking for a reliable way to attain positive cash flow for your SMB, seeking out a loan from the bank is one of the best ways to do so.
● Access to large sums of money – When you apply for a bank loan, depending on your circumstances, you may be able to ask for a larger sum of money than you would if you sought out other means of financing.
● Flexible repayment terms – Banks often offer flexible repayment terms, meaning you can find a schedule that works well for you.
Drawbacks
● Complex application process – Bank loans often have lengthy, complex application processes, which means they might not be the best option if you have an immediate need for the funds
● Strict eligibility criteria – While banks can be seen as a safer option, getting a loan often means navigating various eligibility hurdles, including credit score requirements, for example.
2. Government Grants and Loans
Government grants and loans are in place to support SMBs and, as such present a favourable way to improve your cash flow. By the end of 2023, the UK government had distributed over £1bn to small businesses as part of its Start Up Loan scheme.
If you can secure a grant, then you won’t need to repay it at all. In the case that you secure a loan, it will more often than not be on a low-interest scheme.
Benefits
● No repayment for grants – Government business grants don’t require you to repay anything, so they’re an excellent way to get a cash injection without any of the downsides. Even loans are low-interest, so they can also be a viable option.
● Favourable terms – Compared with bank loans, government loans offer much more favourable terms to SMBs, making them a good option for newer and scaling SMBs
Drawbacks
● Highly competitive – Government grants and loans can be hard to secure since lots of businesses apply for them.
● Strict eligibility criteria – As with bank loans, government grants and loans may require you to meet a lot of conditions to be eligible to apply
3. Crowdfunding
Crowdfunding is an innovative way to seek capital in 2024 by asking a significant number of independent backers to contribute small amounts of money and help you reach your funding goals.
To give you an idea of how popular crowdfunding has become in recent years, the annual volume of equity-based crowdfunding in the UK grew by more than £500 million between 2013 and 2020.
(Source: Economic Observatory)
Benefits
● No repayment is necessary. With crowdfunding, every penny you raise is yours to keep once you reach your target.
● Extra marketing for your business – Many crowdfunding platforms like Kickstarter will raise the profile of your business as you’re raising funds, giving you the opportunity to broaden your audience.
Drawbacks
● No guarantees – With crowdfunding, there’s no guarantee that you’ll meet your funding target, meaning you could put in a lot of time and energy for no financial reward.
● Significant time investment – Crowdfunding is a very hands-on way to access capital and requires marketing campaigns and back-and-forth customer communication to be successful
4. Invoice Financing
Invoice financing is a way of borrowing money against the value of your outstanding invoices. As an SMB, this can be an effective way to boost your cash flow even if you have various invoice payments pending. Additionally, incorporating tools like Invoice Workflow Software can streamline your invoicing process, ensuring that your cash flow operations are more efficient.
More than 45,000 businesses in the UK use some form of invoice financing in 2024.
More than 45,000 businesses in the UK use some form of invoice financing in 2024.
Benefits
● Boost your short-term cash flow – With this method of accessing capital, you can offset the downside of unpaid invoices with a cash injection.
● Flexible repayment terms – Your invoice financing loan will be repaid as you start to receive invoices from your customers
Drawbacks
● Interest and fees – Invoice financing will typically include interest and fees affecting your profitability.
● Customer trust issues – In some cases, customers will be notified that their invoices are being handled by a third party, which can lead to trust issues
5. Revenue-Based Financing
Revenue-based financing (RBF) is a loan option whereby the business agrees to repay the loan as a percentage of future revenue.
As of 2022, around 85% of small businesses in the UK claimed that they were unaware of revenue-based financing, so it’s still a relatively new concept to many.
Benefits
● Scalable repayments – RBF loans scale alongside your business income, so it’s easy to manage even when your profits vary from month to month
● No equity dilution – With RBF loans, you don’t have to cede ownership when accessing capital, unlike venture capital and other funding options
Drawbacks
● Expensive option – RBF loans are flexible but may end up being more expensive in the long run with higher interest rates
● Strict eligibility criteria – Since not all SMBs will qualify for RBF loans, it’s not a great option for every business
The Best Option for Accessing Capital in 2024
As an SMB, you have a lot of options available to you to access capital in 2024.
Whether you need to improve your short-term cash flow or your long-term business financial health, you can find the perfect solution.
When choosing, consider factors such as when you need the money, how much you’re likely to need, and whether you could benefit from additional marketing, too.
Disclaimer:
CBD:
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