Ideas for funding small businesses, and considerations when buying a second home
Just two topics on the agenda for today’s blog post – an exploration of potential finance options for small businesses, plus top points to consider when purchasing a second house.
Exploring finance options for small businesses: A guide to fuelling growth
Shawbrook Bank recently conducted research that indicated that half of small business owners have had to raid their savings to fund their businesses.
Their survey found that small businesses applying for finance from lenders over the last year said that it didn’t meet their needs. So, they were using savings and credit cards to provide the necessary funds to grow their business.
For small businesses, the path of growth is often obstructed by financial constraints. Whether it’s investing in new equipment, expanding operations, or hiring more staff, accessing the right funding is crucial.
What are some viable options available to small businesses?
- Traditional bank loans: Perhaps the most common form of financing, bank loans provide businesses with a lump sum that is repaid over a predetermined period with interest. While they offer stability and structured repayment plans, securing a bank loan can be challenging due to stringent eligibility criteria and lengthy approval processes.
- Government Schemes: The government has introduced schemes to facilitate access to finance. For instance, the Growth Guarantee Scheme, which is the successor to the Recovery Loan Scheme, will launch with accredited lenders on 1 July 2024. The scheme provides lenders with a 70% government backed guarantee, thereby reducing the risk associated with lending to small businesses and making finance easier to obtain. (See: https://www.british-business-bank.co.uk/finance-options/debt-finance/growth-guarantee-scheme)
- Alternative Lenders: With the rise of fintech, alternative lending platforms have emerged as a viable alternative to traditional banks. Known as marketplace lending, peer-to-peer lending, or P2P lending, alternative lending typically takes place through online platforms that bring borrowers and loan investors together.
- Angel Investors and Venture Capitalists: For businesses with high growth potential, seeking investment from angel investors or venture capitalists can provide the necessary capital injection. In exchange for equity ownership, investors offer funding along with their own strategic guidance and industry connections.
- Crowdfunding: Crowdfunding platforms have gained popularity as a means of raising capital by pooling small contributions from a large number of individuals or investors. These platforms offer businesses the opportunity to showcase their ideas and garner support from the crowd.
- Grants and Subsidies: Various government grants and subsidies are available to small businesses across different sectors. These can range from grants for research and development projects to subsidies for hiring apprentices or investing in energy-efficient technologies. While it can be competitive trying to obtain one, securing a grant can provide businesses with non-repayable funds to fuel growth.
- Asset-Based Financing: Asset-based financing allows businesses to leverage their assets, such as inventory, equipment, or property, to secure funding. Options like asset-based lending and sale-and-leaseback arrangements enable businesses to unlock the value of their assets without relinquishing ownership.
- Revolving Credit Facilities: A revolving credit facility provides businesses with access to a pre-approved line of credit that can be drawn upon as needed. Unlike a traditional loan, where funds are disbursed in a lump sum, revolving credit offers flexibility and allows businesses to manage cash flow fluctuations effectively.
- Personal Savings and Friends/Family Loans: Coming back to where this article started, of course personal savings and friends/family loans are often a practical option in the early stages of business growth. While this option may lack the formality of traditional financing, it can provide a quick source of capital without the need for extensive paperwork or collateral.
In conclusion, obtaining finance isn’t always straightforward or easy as a small business. However, there are options out there and by carefully assessing your funding needs and being open minded about the options, you can find the right financing solution to fuel your growth ambitions.
As experienced business advisers we’ve helped many businesses get the finance they need to fuel their business growth. Please feel free to call us at any time and we’ll be happy to help you. And if you are a new business, why not ask us for a copy of our New Business Kit?
Buying a second home: what should you think about?
As accountants, we are often asked about the financial and tax implications of buying a second home. Sometimes the pull of a country or seaside retreat might inspire you to think about having a second home. Or maybe you have spare cash or income and are wondering if a second home could be a good investment.
Whatever the reason, before you take the plunge, what are some things you might want to consider?
What are the costs of buying a second home?
It will sound obvious to say, but outside of the purchase price there are a number of other costs to think about that may impact on your decision.
- Stamp Duty Land Tax (SDLT): This is one of the significant costs to consider. For second homes, there’s an additional 3% surcharge on top of the normal SDLT rates.
- Council Tax: Second homeowners in England should also be aware of potential increases in council tax. From April 2025, under the Levelling Up and Regeneration Act 2023, councils will have discretion to charge up to 100% more in council tax on furnished homes not used as a main residence. This means you could end up paying double the usual amount.
- Insurance: Because they’re often unoccupied for periods, insurance premiums are sometimes increased for second homes.
How will you pay for it?
Unless you have cash available to buy a second home outright, you’ll likely want to think about how you will finance your purchase. With this there are essentially two options.
- Mortgages: Meeting the conditions to get a mortgage on a second home can be challenging. For instance, a higher deposit is often required than would be the case for your main home. An interest-only mortgage could help to keep the costs down, but over the long term you’ll still need a repayment plan.
- Equity release: Your main home may have equity that you could release to fund your purchase. You might be able to borrow on the value of this equity using an equity release scheme. These have risks though, so you should get expert advice if you are considering this as an option.
Are there any tax implications to think about?
Besides the SDLT we discussed before, tax implications will depend on how you plan to use your second home and what your future plans are for selling it.
- Tax on rental income: Some second homeowners rent the home out for a period or use it as a holiday let. These can be good ways of helping to cover your costs if you don’t plan to live in the property yourself. However, any rental income you make will need to be declared on your tax return. On the plus side, some of the costs of running a rental property can be offset against the income.
- Selling your second home: When you sell your second home, any profit will be subject to Capital Gains Tax (CGT). The gain is calculated as the difference between the purchase price and the selling price, minus any allowable expenses and reliefs. This is different to the situation where you sell your main home, which is usually tax-free. If you plan to permanently move to your second home at some point in the future, then any gain you make from that point onwards could be tax-free.
Given the complexities of tax regulations around second homes, it’s essential to get expert advice. As your accountants, we can help you navigate these rules and make informed decisions. Please just give us a call and we’ll be happy to provide you with personalised advice.
Whether you’re considering buying a second home for personal use or as an investment, understanding the financial and tax implications will help you manage the costs effectively, avoid any surprises, and enjoy the benefits that come from your new place with peace of mind.