Plain Talk

What are the Funding Options for Small Businesses Looking for New Premises?

The global economic crisis, which has impacted the retail market since 2008, has led to a high level of retail premises changing hands. As increasing numbers of retailers were forced to close their doors as the nation tightened its belt, it led to empty shop fronts in malls and Main Streets nationwide. The good news is that the retail market has recovered, albeit slowly. Businesses are no longer fighting for survival, but are thinking about expanding. If you’re thinking about growing your business, or starting a new one, there are a variety of funding options to consider when looking at leasing new retail premises. Lending to small businesses is on the up, personal loans are more flexible than ever and there are a range of innovative trends for sourcing funding you may not have considered.

Traditional lenders

Banks and credit unions are always the first port of call for businesses. Unfortunately, convincing banks to lend to small businesses is not easy. Once again the effect of the financial crisis is still being felt. Small business loans declined 27% from June 2008 to June 2013. The cause for this is not just the banks’ fault, although worrying economic times has understandably led to hesitation in handing over the cash to retailers. The banks say that the decline has been led in the fall in small businesses applying for loans, as thousands went out of business in the years following the financial collapse. It’s a problem which didn’t go unnoticed, as a pledge was made by 13 major US banks to increase small business lending by $20 billion by September 2014. One year ahead of their deadline the banks have already reached 85% of their goal by increasing their lending to small businesses by $17 billion. This means there’s never been a better time to apply to one of the major names for essential funding for your business premises.

When you approach a bank or credit union, you’ll need to have prepared your request in advance, whether you’re starting up a new business, or expanding an existing one. It’s essential to take advice from an industry body such as the US Small Business Administration when applying for your business loan. You’ll need to ensure that any money you borrow can be used for buying retail premises, and you might want to increase the amount of the loan to cover other expenses, such as start-up costs for stock, utilities and rental deposits.

Short-term personal loans

If your business is already doing well, you may have raised nearly enough capital to fund your business expansion. If this is the case you may want to avoid getting a business loan and take out a personal short term loan to give your business a boost, for example, to pay the first few months’ rent on retail premises. According to money.co.uk for smaller businesses it is possible to take out a secured or unsecured personal loan to help finance a company. The first thing to consider when applying for a personal loan is whether your credit history is good enough for the banks to lend to you. You will also need to prove that your income is in good shape, and if you’re self-employed then several years of accounts could be necessary. Short terms loans are typically from one to five years, and can be ideal if you don’t want to get into a long contract, and if you’re confident your business will be successful in the near future. Make sure that you shop around for the best deal, as your usual bank or credit provider may not offer the best rate. Some lenders have special offers for new customers, so ensure you take advantage of any deals or incentives.

Alternative sources

For those business owners who don’t want to take out conventional finance, there are alternatives. Online transaction company PayPal entered the small business lending market on September 24. The well-known company, owned by Ebay, offers merchants which use PayPal a bank loan that charges a single flat fee, with no interest. As increasing numbers of businesses, such as Starbucks, use PayPal for the customers to pay remotely, this is a good option for an increasing number of retailers. PayPal will lend up to 8% of the retailer’s annual PayPal revenue, up to $20,000, and then extracts a percentage as payment fee from daily receipts. As this is a percentage based on earnings, low footfall days don’t have to be met with panic, as they are when there is a set loan amount to repay. This could be a useful option to cover incidental costs when moving to new premises, and could also prompt your business to accept PayPal.

Crowd-funding has also become a buzz word in business over the last year. This means that businesses can set up an appeal for funding online, with investors giving anything from $5 to $50,000. For start up businesses, this means that investors are unlikely to see a return, but crowd-funding can also mean selling small amounts of equity to many investors, with them more likely to see a return if the company performs well. This had been restricted in the US but has now been freed up due to the success of the crowd-funding exemption movement which campaigned for small investment offerings to be exempt from the legislation governing large corporations. It was followed by the Jumpstart Our Business Startups (JOBS) Act, signed into law by President Obama in April 2012. The change finally took place on September 23 as the US Securities and Exchange Commission allowed small businesses to advertise investment opportunities, in effect allowing them to crowd fund. It is hoped the new legislation will mean that more small businesses can raise the cash to grow, and this means more retail premises could be filled by the end of the year.

A good time for expanding businesses

With so many ways to find funding, looking for new retail premises for your business should be simple. If you’re expanding your existing business then it’s the perfect time to find a new place and tap into a new pool of customers. If you’re taking the plunge to set up a new business, finding retail premises is at the top of the list when it comes to making big decisions. By getting the funding in place early on, your business will be on the best footing to begin its journey.