With the outbreak of COVID-19 globally and lockdown measures in place in the UK, much attention has been placed on providing lifelines to businesses struggling during this period. The government has stepped forward with financial schemes and support for businesses during this time, such as the Coronavirus Job Retention Scheme and Coronavirus Business Interruption Loan Scheme. While the focus on keeping businesses afloat during these times is incredibly important, it has left a gap for those businesses who are actually seeing performance increase during the COVID-19 pandemic.

For certain businesses, such as manufacturers, online retailers and food suppliers, coronavirus has brought an increase in demand which these companies need to rise to meet. These businesses are facing unprecedented growth, and this sudden growth requires investment to allow demand to be met – such as funding for additional equipment, increased staff and more supplies. This means finance is needed for these businesses as much as it is for struggling companies, despite the commercial market for growth finance decreasing in the face of COVID-19. In this blog, we will explore the ways these businesses may – and the ways they shouldn’t – secure growth finance during the coronavirus pandemic.

• Funding sources to avoid in the current situation
• Consider alternative lenders
• Utilise invoice finance
• Leasing and hire purchase
• Seek angel investors
• Know how to approach lenders

Funding sources to avoid in the current situation

With the current financial climate, there are certain funding sources that should be avoided for the time being if you are seeking growth finance. Many commercial lenders are focusing on offering loans to struggling businesses, such as the CBILS and Bounce Back loans, or are lending only to existing customers – so, the avenues for flourishing businesses are narrow in this area. This means businesses seeking growth finance will need to find alternatives during this time.

Consider alternative lenders

Whilst the CBILS lenders are currently focusing the majority of their funding to struggling businesses, this may be the right time to consider alternative lenders for your growth investment. These lenders tend to have access to a different set of funding options, making them more able to lend to businesses that are booming during this time.

Research alternative lenders – or get in touch with a broker who can advise some for you – and find out what they can offer and whether you can apply. Remember, if you do choose to apply for a loan from an alternative lender, it’s important you know how to do so and what information to provide – we will cover this in more detail later in this blog.

Utilise invoice finance

One source of alternative funding is invoice financing. With invoice finance, you can release funds owed to your company through unpaid invoices, using either invoice factoring or discounting. This could be particularly rewarding in a time where your clients are maybe stretching your credit terms, but are still paying you. However, one area to watch out for is the recourse period after which the lending is in effect called in if your client hasn’t paid within that period.

By utilising invoice finance, you can get immediate access to the money tied up in your invoices rather than waiting for your client to pay. This is a short-term solution that can put cash into your business to invest elsewhere.

Leasing and hire purchase

Leasing and hire purchase are other ways in which businesses can access the equipment and supplies they need without having to foot the cost in its entirety up front. This could be particularly helpful if you require additional equipment or machinery in order to meet growing demand from the COVID-19 lockdown.

With leasing and hire purchase, the costs of said equipment is paid over time in affordable instalments. It is also a low-risk source of funding, making it attractive to lenders in a time of economic uncertainty.

Similarly, if it is cash flow that is needed for your business, you can look into the option of sale or leaseback of any assets you may have with sufficient equity to release funds back into your company. This may also be an option further down the line when demand in your business has returned to normal levels.

Trade or supply chain finance

Another option to consider is to look at financing your purchases – if you are importing goods then you could look at trade finance to fund these purchases; similarly, you could look at financing your supply chain in the UK. To fund these types of finance, it is important that you have very strong gross margins.

If you are importing, trade finance can cover the funding gap between an order place by a customer in the UK and payment required by your overseas suppliers, allowing you to source the stock you need to fulfill orders without having to pay up front out of your own cash flow and helping you to meet demand in your business. This will also work in scenarios where the product doesn’t land in the UK, but goes from your supplier direct to your customer in another country as well.

With supply chain finance, you can free up cash flow in your business by instructing a lender to pay your suppliers on your behalf: this is a win-win situation, with your suppliers getting paid early in some cases and you being able to repay the lender with longer payment terms. You can then use this funding to invest in your business expansion.

Seek angel investors

With a large number of commercial lenders focusing on businesses that are suffering reduced cash flow and profit during this time, angel investment is a great alternative for businesses who don’t fall under this category currently.

An angel investor is an individual with a high net worth, who invests their own wealth into a company. If your business is growing during this time, it is likely you will be making increased profit as well as having increased demands on your working capital – and this could make you a particularly viable candidate to these investors.

If you are seeking angel investment, be prepared to showcase your business strategy and present a convincing pitch to secure investment in your business. Our tips for a successful business pitch should help you to do this.

Know how to approach lenders

Regardless of which funding route you go down, the key to success is knowing who to approach and how to do it. You may be tempted to seek funding at every juncture to get your business meeting demand as quickly as possible, but it is much wiser to spend time researching different funding types and lenders to find out that will suit your business and goals best. An experienced financial advisor should be able to talk you through the different options available and help you arrive at the right decision for you.

Once you know who you are approaching, it is fundamental that you have access to your financial information, as most lenders are likely to want a detailed overview of your situation, strategy and other supporting information before deciding to loan money to you. Make sure you spend time collating this information and presenting it in the right way, so you can guarantee success when seeking funding.

If you need advice on how to get growth finance for your business during the COVID-19 pandemic, get in touch today. Our independent and experienced advisors can discuss your options with you and provide impartial advice. Please call the team today for a free consultation on 0203 327 0567 or email [email protected].