How far would you go to secure funding?

06/01/2015

When the founders of popular beer company Brewdog needed a second bank loan to aid their expansion, their tactic was to play one bank off against another. This was a risky move which, thankfully, paid off, but what are the options for businesses in a similar position looking to secure funding?

As reported on the BBC, founders of Brewdog, James Watt and Martin Dickie, were struggling to make ends meet selling their US-style craft beers from the back of their van at farmers markets and were missing payments on their £20,000 bank loan – a problem that many new businesses can relate to.

But, after winning a bottled beer competition organised by Tesco, the business found itself in an all-too-common situation – they were given the chance to expand their business but lacked the funding or equipment to capitalise on the opportunity. The supermarket chain wanted to stock their product in 500 shops, buying 2,000 cases a week but the business didn’t have the capability to meet this need so they took a gamble and said they did.

With Tesco expecting them to deliver their side of the deal, Mr Watt and Mr Dickie asked their bank for another £150,000, so they could quickly install a bottling line and expand production. But, having failed to meet the payments on their existing loan, the bank said “no”.

Refusing to give up, the pair went to another lender and took a chance. They said that their bank had offered them an amazing deal, but that they would switch if the deal was matched, and the new lender went for it.

With funding successfully secured Brewdog was able to increase its brewing facilities, start supplying Tesco and continue to grow into the successful business it is today.

Whilst this bold approach got the business the money it needed, perhaps if the bank manager wasn’t typically the first port of call for businesses seeking funding, the search would have been successful without having to rely on such risky tactics.

Access to funding is well publicised as a limiting factor for SMEs in particular and a barrier to growth for the economy. Typically, traditional lenders are tied by rigid criteria and decisions are based on trading history.

However, alternative funding is coming into its own and very much there to support businesses that are driving growth. The rise of crowdfunding, peer-to-peer lending and invoice trading, as well as more established forms of funding such as invoice finance, mean that businesses have a wide range of very flexible options available to them to support growth.

The benefit of many of the more alternative types of funding is that the lending decision is based on the assets of the business. Invoice finance, for example, looks at the strength of the sales ledger and funds against that which eradicates the need for a detailed trading history.

Here are 4 tips to help you secure the right funding for your business:

1. Build a good relationship with your funder

Like in most relationships, communication is the key to success. Proactively managing your funding relationship by educating them on your strategies, your finances and the vision for your business can help you to negotiate new funding in the future.

2. Refine your business plan

Many lenders will look at your business plan before deciding whether to offer the facility you’re looking for so it’s important to make it count. The plan should portray where your business is heading, what your future strategy is and include realistic financial forecasts.

3. Have an open mind

As the market evolves, this is becoming increasingly important. There’s much more available than an overdraft or bank loan, but making the decision to try something new can be difficult. Yet if this leads to your business securing the facility that ticks every box and provides the funding and flexibility you require, it could be the best decision you’ve ever made.

4. Talk to a broker

With so many options available it can be hard to find the right match for your business. But a good broker will listen to your funding requirements and understand your plans for the future before introducing the facilities and lenders that will enable you to achieve them.

For more tips to help your business secure funding download our free eBook: How to overcome the most common challenges when looking for funding.