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Posted 22nd December 2023

How SMEs Can Raise Money in Trying Times

It’s not an easy time to get investment. Interest rates are stubbornly high and show no sign of coming down soon. Recent ONS data suggests capital formation is at its lowest point since the financial crash in 2008.

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how smes can raise money in trying times.

How SMEs Can Raise Money in Trying Times
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Damon Anderson, UK Managing Director, Employment Hero

It’s not an easy time to get investment. Interest rates are stubbornly high and show no sign of coming down soon. Recent ONS data suggests capital formation is at its lowest point since the financial crash in 2008.

But there are still good businesses out there getting investment to grow in this trying environment. And if you’ve got a strong business, there’s no reason you can’t get the capital you need to grow. You just might need to think a bit differently. Here are four strategies to try – with each one suited to a specific type of business.


For retailers and manufacturers: Strategic Partnerships and Supply Chain Financing

One avenue that SMEs can explore is strategic partnerships with potential funders or other entities within the supply chain. Partners of yours within the supply chain probably already know your business, and also have some interest in your business succeeding. Usually this kind of ‘supply chain financing’ happens through an intermediary which allows both parties to gain some liquidity and short-term capital.

But partnerships within your supply chain need not be limited to that kind of financing. By negotiating favourable payment terms with suppliers or facilitating early payments from customers, businesses can optimise their working capital. This not only ensures a smoother cash flow but can also lead to stronger relationships within the supply chain.

It’s crucial to be on the lookout for potential pitfalls. Dependency on a single partner or overreliance on supply chain financing could expose businesses to risks. Diversification of partnerships and careful risk assessment are essential to ensure the stability and sustainability of such arrangements.


For construction and trade companies: Asset-based or invoice-financing 

Blue-collar companies that do real-world work like plumbing and construction are a huge part of the British economy, but don’t feature in the wishlists of many angel investors. The nature of the work makes it hard to scale like a tech business – but it can also give it the solid foundations for other routes to low-cost capital.

One option to explore is simple asset-based financing, which works well if you own a lot of machinery already. While it isn’t particularly enjoyable to consider having to sell these assets if you default, the security they allow will get you a far lower interest rate than an unsecured loan.

Another option for this kind of business is invoice-financing, which lets you borrow against the value of unpaid invoices. Anyone in this sector can tell you how troublesome the odd unpaid invoice can be to normal cash flow – let alone the money you need to expand – so this can be very useful.


For consumer-facing companies with a great scalable idea: Crowdfunding 

Crowdfunding has emerged as a powerful tool for SMEs seeking alternative financing all over the world. And it’s not just for smaller firms either – newsletter juggernaut Substack recently raised US$7.5 million from its own writers. Platforms like Kickstarter, Indiegogo, Seedrs, and Crowdcube allow businesses to raise capital directly from a large number of investors, often with appealing rewards or incentives for backers. This usually (but not always!) works best for consumer-facing startups, as investors can easily understand the utility of your product.

The potential benefits of crowdfunding are obvious. It provides a platform for SMEs to showcase their products or services to a broader audience, creating a direct connection with potential customers as well as investors. The simple fact of your crowdfunding succeeding may lead to positive news coverage.

However, the road to successful crowdfunding is not without its challenges. The competition for attention on crowdfunding platforms is fierce, requiring businesses to craft compelling narratives and marketing strategies. Additionally, meeting backers’ expectations and delivering on promises is crucial to maintaining trust and credibility. If you don’t, you won’t just disappoint investors – but a large part of your customer base too.


For ultra-scalable tech companies: Angel Investors

Angel investors know the best time to invest is when everyone else isn’t.

Unlike traditional lenders, angel investors are often more willing to take calculated risks, seeking innovative and promising ventures. They also often offer mentorship and access to a wider business network that can be crucial. So if you’re doing things quite differently they could be your best bet.

But attracting this kind of investment is not easy. Personal networks matter a lot here, so leaning on old connections or friends of friends may be required. And your pitch deck has to be rock solid – showcasing not just the good fundamentals for your business but also serious growth potential. And there are risks of losing more control of your company than you might like.

In conclusion, there are ways to get financing right now. They aren’t easy – but running a business never is.

Categories: Finance, News

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