Are you wondering how SMEs are attracting lenders or investors right now? The economy relies on SMEs and therefore relies on investment in them. This is more true now than ever before since Business has become as powerful as Government when it comes to industrial, and societal, change.
Due to COVID some could argue that we are in a time of mild economic crisis and, as a result, general investments across most markets will decrease. That means competition for investment just got hotter. So, it’s all the more important to ensure your SME is attractive to those willing to fund projects.
Is your SME looking to find a cash injection? Perhaps you need the financial capacity to hire new people, or funding for specific, technical innovation, or you have plans for a total company restructuring. Whatever it is, you’ll need to start with these key considerations.
First decide, do I need a lender or an investor?
Firstly, you should assess your initial cash flow. Then, decide if you want that cash flow to grow into something more self-sustaining by either attracting lenders or investors. Understanding the difference between the two will help you build your pitch.
What are the differences?
When deciding between attracting lenders or investors, remember a lender is any entity. This could be a bank or an individual. They will lend money with an expectation of repayment, including interest on top of the original loan amount. It’s a type of investment but one based on agreed-upon interest rates. A lender must be repaid, and a loan from a lender is often backed by an asset, such as property, or the threat of higher interest rates on late payments. A lender is usually focused on minimising risk in order to recoup their loan. This means that lenders usually have less involvement in the business itself.
An investor, however, puts money into an idea or asset that will, in time, increase in value. This means an investor is much more motivated to see the value of an asset rise than a lender. They are more involved in business decisions, and nearly always take on a bigger risk, with the potential of a higher reward.
If you want financial help from someone who will be involved and may offer advice or expertise, then you should choose an investor. But remember that they could expect more financial return in the long run. If you want someone who will take a step back, allowing more freedom for you to do what you want, then a lender would be preferable.
Your strategy for attracting lenders or investors
After deciding whether you are attracting lenders or investors, you must also make sure you are ready to make your SME and its vision as attractive as possible for them to want to loan money.
These tips apply anytime you are thinking about attracting lenders or investors. But it’s more important than ever to put your SME in a strong position for financial support.
The competition for this kind of help has increased, despite the Government offering a plethora of business support packages. Moving forward, lenders and investors will be cautious. They are also increasingly interested in companies and projects with innovative social and/or environmental benefits. Are you thinking green yet? Clean Growth Fund UK have some interesting insights to get you started.