SME Finance – What are your funding options?

In Business Management Software by Jamshaid (Guest)

Reading Time: 3 minutes

If you run a small or medium-sized business, and you’re looking for funding, there are various options open to you. Whether you need a cash injection to buy more stock or hire additional members of staff, or you’re looking to expand your business or diversify your product or service range, it’s always beneficial to explore different finance options and take the time to determine which avenue is the best for you.

Dave Beard founder of finance website Lending Expert has highlighted some of the most common funding streams available.

Angel funding

Angel funding involves borrowing money from an angel investor or a number of investors. Angel investors are sometimes known as informal investors, and they are often people who are linked to the business in some way, for example, close friends or relatives of the owner. It is also common for angel investors to be entrepreneurs who have a link within the industry or the local area. If you’re looking for an angel investor for a local business, and you don’t have friends or family members who could offer help, it’s worth approaching business moguls in your local area. Angel funding is commonly used to help start-ups and new companies.

Merchant cash advances

Merchant cash advances are a relatively new concept. The idea is that you borrow money in exchange for a percentage of your revenue. In most cases, you’ll agree to pay back the loan via a proportion of your card sales. If you have a card terminal, and you have a steady flow of transactions throughout the month, this could be an appealing option. Merchant cash advances are particularly beneficial for businesses that don’t have valuable assets but do take in significant sums through card payments.

Peer to peer lending

If you’re looking for a simple, swift means of borrowing money, peer to peer lending may be an ideal choice for you. With this form of funding, a peer to peer lending platform will match you with an individual or a company that is willing to provide you with the funds you need.


Crowdfunding has become increasingly popular in recent years. If you choose to raise funds this way, you approach a large number of people, usually asking them to donate a small amount to the cause. Using a crowdfunding platform, you can pitch your idea, and if people are keen on supporting you, they can give money to help you reach your target. Crowdfunding campaigns can take off very quickly, and they’re also an excellent way of raising your profile and introducing large groups of people to your brand.

Venture capital funding

Venture capital funding is a system that involves investors financing small businesses and startups that they believe have the potential to grow and generate substantial profits. Funds can come from wealthy individuals or providers like banks. Venture capital funding provides business owners with the finances they need, but it can also offer other benefits, especially if the investor is willing to impart wisdom, offer advice and provide access to contacts.

Asset finance

If you’re looking to buy equipment for your business without worrying about covering upfront costs, asset finance could be an option worth considering. Asset finance works by allowing you access to the equipment or machinery you need in exchange for a regular payment. The lender will pay for the equipment and then charge the user.

Mezzanine debt

Mezzanine debt is a form of financing that may be used when a business owner wants to borrow money, but they can’t secure all the funding they need from an investor or a financial organisation. If you wanted to borrow £100,000, for example, and an investor was willing to offer £80,000, they could then look for a mezzanine investor to add to the pot. Mezzanine debt is often described as a bridge between equity and debt. Although the risks are higher than some types of funding, the returns are also likely to be higher (usually between 12% and 20%).

Which type of funding is best for me?

With multiple funding streams and options on the table, it can be confusing to determine which is best. There are several factors to consider when making a decision, including the amount of money you want to borrow, the reason you want to borrow, and your long-term objectives. If you’re looking to expand your business and you think you’d benefit from advice and expert insight, it may be worth looking into venture capital funding. If you have friends or a local investor that is interested, angel investment may be the way forward. If you need equipment, asset finance is a good option. Weigh up the pros and cons, and seek expert financial advice.