The quickest ways to access money for your business
The COVID-19 pandemic has brought huge uncertainty for businesses with it. At a time when footfall is down and revenues have tanked, a few wrong moves could see a firm collapse due to poor cash flow or other related issues.
It’s at times like these that the problems with our business banking systems are exposed. All too often businesses struggle to access the financing options they need, and even when the banks do agree, the money frequently comes too late – leaving businesses in the lurch and having to suppliers not to commence legal action.
As these challenges come into focus for embattled businesses facing down the COVID-19 lockdown restrictions, here are some of the best ways to access money for your venture as and when you need it.
Why does it take so long to get a traditional loan?
You’d think that the UK banking system would be a well-oiled machine, but ask any small business owner that’s applied for a loan and you’ll learn that this simply isn’t the case. Many banks and building societies follow a similar process when deciding whether or not they can lend money to a business and it’s this approach that causes delays.
In broad terms, you can split the UK banking sector’s commercial lending process down into three key sections:
The Initial Assessment – This is where the bank assesses if the applicant organization meets its basic compliance criteria and checks to see whether they have all the materials needed to make a decision.
Conditional Approval – Where the bank’s underwriters calculate the details including how much they can lend and whether you will need to put any assets up as collateral.
Final Assessment – Finally, if the bank is satisfied that they can lend to you, they will perform a final review before accepting your application.
Now, it sounds very straightforward on paper, but this approach is also complicated by the fact that conventional lenders are constrained by their funding requirements to take into account each and every part of the business, regardless of your firm’s financial reality. This means that even the slightest indiscretion or issue in your books could lead to your application being declined, or the bank refusing to lend except on restrictive terms.
Ultimately, all of this means that conventional lenders are often too bound by outdated rules to properly cater for the modern business market – letting too much time pass by before issuing a decision either way.
Fortunately, there are plenty of other ways for business owners to get hold of the cash they need. In many cases, it’s actually faster and easier to go elsewhere regardless of the circumstances, begging the question of whether it’s even worth making an application to a high street bank in the first place.
Borrowing from friends and family
As awkward as it may seem, it’s actually incredibly common for business owners to borrow money from friends and family.
As a short-term solution, there is arguably nothing easier than asking somebody you know and trust to front the costs of your business until you can get some cash in, but it’s still important for anybody considering this route to exercise caution. There are countless horror stories that illustrate just how badly this could go wrong if you don’t take the right steps to get your agreement confirmed in writing – and an error could even lead to a tarnished relationship.
Ultimately it may be easy, but borrowing from family and friends should only be a limited-time solution for when you have a clear route to repaying what you owe.
Seeking external investment
External investment is something that many people associate with the likes of Dragons’ Den and other high stakes elevator pitches. In reality, there are tonnes of individuals and institutions who are willing to assist businesses financially for a slice of their equity.
From angel investors through to more formalised arrangements with venture capitalists, getting an investment firm in to plug your cashflow hole could make all the difference to your future business prospects. Just be aware that you’ll likely have to sign away ownership of some of your business in the process.
Taking out a personal loan
Arguably the easiest and fastest way to access money for your business is to apply for a personal loan. Unlike the process used by banks to vet business lending applications, the path to getting a personal line of credit is simple and money could be paid into a company director’s UK bank account on the same day.
It’s even possible to take out small loans for bad credit, so directors don’t need to worry about having a gold-plated credit score. For many of these direct lenders, what matters more is whether your current situation lends itself to repaying what you owe – allowing all the concerns of making a full business case to melt away.
Business funding when you need it the most
Regardless of why you need financial support for your business, it’s worth thinking about how you’ll repay what you owe. No matter where you seek out a line of credit, you’ll need to settle your debts at some point and so planning and preparation really are the order of the day whether you’re borrowing from a family member or taking out a short-term personal loan.
Thankfully, all of these methods are generally faster than the slow-moving processes of the high street banks, and so while they’re pondering whether to lend, you could be out building your business back to profitability.