Need to raise funds to raise investment levels for your small firm?
There are a wealth of ways in which a firm can borrow money
Here Paul Lynam, chief executive NatWest & RBS Business Banking, looks at a number of different options.
Jon Hodds, UK
I am currently seeking to purchase two pieces of machinery to improve workflow quality and capacity. I would be looking to borrow approximately £120,000. Which would be the best place to look?
Paul Lynam, chief executive NatWest & RBS Business Banking
There are a variety of options available to raise the funds that you require depending on the financials of your business.
The first thing to check is if you are eligible for any grant aid from the government, your local authority, regional development agency or the EU for your investment.
Otherwise you could consider asset finance or a business loan, both of which have their pros and cons.
Firstly you could choose the asset finance route. Asset finance is an umbrella term for a number of specific financing arrangements such as a hire purchase agreement, finance lease or operating lease.
Asset finance is particularly good for businesses that want lower installation costs, lower fixed monthly payments and want less of their capital tied up in purchasing the machinery.
Depending on the agreement, machinery can and will be replaced for new models after agreed time periods allowing you to benefit from the latest technology. With a lease agreement however, you do not own the machinery and it cannot be classed as a business asset.
Alternatively you could consider loan finance. With loan finance you retain full ownership and control of your business, but you may be required to give personal guarantees or security.
Lenders will look at gearing (the percentage of loan finance to total finance) and will not lend if the gearing is too high. They will also look at interest cover - the number of times the forecast profit exceeds the interest - and will not lend if it is too low.
If you do decide to go ahead with a loan, you should consider whether a fixed or variable rate product would be best for your circumstances.
If you want the piece of mind of regular payments then a fixed rate option may be right for you, whereas if you prefer a loan which tracks base rate it would be worth choosing a variable rate loan.
Some loans also allow you to reduce and increase payments, take payment holidays or repay early without paying any additional fees.
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