In the current retail climate, survival is the primary focus of many bike shops. But what if you’re looking to grow? Business finance expert Emily Relph explores funding options.
There are a whole host of great benefits associated with business expansion; you can increase your customer reach, increase your sales, and most importantly, increase your profits. However, understandably, many cycle retailers are wary of taking the plunge due to both a lack of funding and not knowing exactly when the best time to expand is.
As the problems related to climate change continue to dominate the news and press, it would appear that cycling has become a more popular method of commuting to work. In fact, according to British Cycling, the sport’s governing body in the UK, more than two million people across the country now cycle at least once a week, which is an all-time high. This arguably makes 2019 the best time to start cashing in on the sport’s continued rise in popularity.
Nowadays, businesses are no longer restricted to just applying for funding from the big brick and mortar banks, so finding a funding option that suits your business’ needs is also far easier than ever before. But with a multitude of funding options out there, from online business loans and invoice financing to crowdfunding and commercial mortgages – which option should you choose?
Online small business loans
A small business loan offers your company easy and straightforward funding, simply by applying online. Better still, this type of funding is unsecured, which means you can borrow money without having to secure the loan against your business’ assets, such as property, stock or any equipment. So it’s an ideal option for small businesses with little valuable assets.
Receiving funding is an immensely quick process; often the money can be in your bank account within just 24 hours. There is also only a minimal amount of paperwork to be filled out upon application, and the repayment scheme is very flexible and can be tailored to your business’ needs. Small business loans can be used for anything your business requires; from paying utility bills and buying equipment to paying staff members or expanding. For your business to receive this type of funding, a comprehensive credit history with a proven ability to meet repayments punctually is required.
In simple terms, invoice finance is when you sell on any of your company’s unpaid invoices to a third party for a cash lump sum. Because these invoices are proof of your company’s future income, you consequently are not relying on a perfect credit score or expensive assets to get you increased funding.
There are two main different sorts of invoice financing: invoice factoring and invoice discounting. With invoice factoring, the debts owed to your business will, in effect, be bought and you will be given a percentage of the cost upfront. Typically, it is the invoice financier who then takes responsibility for collecting any money your customers owe you. With invoice discounting, on the other hand, money is lent to you against your unpaid invoices, which is typically a set percentage of their overall value.
Generally, it is larger companies who tend to use invoice discounting, and invoice factoring is more popular with and suited to smaller or medium-sized businesses. Both types of invoice finance, however, provide you with quickly increased cash flow which allows you to expand your cycling business effectively. However, do bear in mind that with invoice factoring your customers will know that you have opted to use this funding option, as someone else will be responsible for collecting outstanding payments. So, if you’re looking for a more private means of funding this one might not be for you.
An increasing number of businesses now fund new projects or products through crowdfunding. Kickstarter crowdfunding statistics show that as many as 22,000 projects were successfully funded last year in this way. Whilst there is a large misconception of crowdfunding being entirely donation-based, most crowdfunding is actually reward-based. Donated pledges can, of course, be made, but it is generally reward-based crowdfunding that is most successful for small businesses, which websites such as Kickstarter provide.
Campaigns must be for new projects, products or a service which appeal to a wide enough group of people, in order to generate strong support and financial backing. Running a successful campaign isn’t without its difficulties either; generating enough excitement and support for your new project, product or service is not always easy.
It is important to choose your platform and target audience carefully and to put enough time into your pitch so that it is attractive enough to gain public support. It is also important to note that it can take a large amount of time before your target is reached, making crowdfunding a slower funding option than others that are out there.
Stock finance allows you to release value from your current stock. Lenders purchase stock from your company on behalf of the buyer. This tends to be used as a 30- to 90-day revolving facility which allows businesses access to cash when they require it, and funding can usually be in your bank account within just 24 hours.
This is a great option for any business owner struggling to sell stock directly on to customers, potentially due to seasonal fluctuations in sales, or otherwise just looking to quickly increase their funds and maximise their growth potential. Stock finance also carries the benefit of protecting any working capital.
Often expensive rent costs put business owners off the idea of expanding. If you are looking to buy your first cycling store or move your business over to a new or larger location, a commercial mortgage is an easy and straightforward funding option. Usually, the only security taken for the loan is the property you are buying, which is normally around 70% of the worth of the property value. A cash deposit is needed for the balance of the purchase price, but if you are unable to provide the lender with a cash deposit, then it is sometimes possible for you to offer additional security. This is usually another property which you have sizeable equity in.
Commercial mortgages provide you with the financial support to invest in a property of your own, which will improve your profits and cash flow in the long run. You won’t have any unexpected increases in rent, although it is worth noting that your monthly repayments could go up if you have a variable rate deal. Often at least two to three years of trading history will be required from you when making an application so that your lender is assured that your business will be able to afford the monthly repayments. This can be problematic for any business owner who has only been trading for a limited amount of time.
Traditional bank loan
While perhaps a more old-fashioned funding option, traditional bank loans are still a popular option for many business owners looking for additional capital to expand their business. If you have a good relationship with your bank and a good personal credit score, this could be a suitable option and a great way to get funding.
However, it’s worth bearing in mind that smaller companies sometimes often struggle to obtain funding from the banks: since the financial crisis, Britain’s high street banks have been less willing to lend to small businesses over fears they might default, and so getting set up with a traditional bank loan is likely not a viable option for every single business owner.
If you haven’t got a perfect credit score or your business hasn’t been open for long enough, it’s likely that your business won’t qualify for a bank loan. Further still, the process of getting a loan through a bank can potentially be a long and time-consuming process, so it’s not a good solution if you’re in a hurry.
Credit cards are typically the easiest and most obvious option for accessing more capital for your business. However, the amount you are able to obtain is based on your credit limit. In most cases, this will mean that the amount you receive will be considerably less than that which you could get from a traditional bank loan or an alternative type of funding. That being said, credit cards are a handy option for any business owner with small-scale revolving needs, you just need to make sure you shop around for the best repayment terms and interest rates.
The bottom line…
There are so many different funding options out there for business owners who are looking to expand. Each option, of course, has its pros and cons, and some options will be more suited to your needs than others. Take the time to do extra research before committing yourself to any sort of loan or scheme, but you will be sure to find a funding option that is exactly right for you and your business. Increased funding will allow you to get started on finally expanding your company and thus achieving your business goals.