Business Funding Demystified with Josh Rees

We could all do with some cash, right?

When you run a business, there's a good chance funding will come up. Whether it's an injection to get you off the ground, capital to fuel your next phase of growth, or some breathing room to navigate a tight patch — at some point, most founders find themselves needing to think about business financing.

And for a lot of people, that's where things get complicated. Where do you even start? What options are out there? Who do you speak to? What should you actually be aiming for?

And beyond the practicalities, the idea of business debt itself can bring up a lot emotionally — feeling safe enough to borrow, trusting yourself to hold and handle a significant sum, and knowing you're making the right call. That uncertainty can keep you stuck, not taking the action your business needs.

Your mission is too important to stay stuck grappling with or avoiding the unknowns of funding, so we've invited Josh Rees to answer some burning FAQs to help us navigate this calmly.

Meet Josh Rees — Commercial Finance Specialist

I'm delighted to introduce Josh Rees, who is here as our subject matter expert on business financing to answer our FAQs.

Josh is the founder and Director of BCDF — a Bristol-based not-for-profit social enterprise specialising in commercial finance solutions for new and growing businesses.

Since 2019, they have raised over £2 million in finance for businesses, with a particular focus on founders who have struggled to access funding through mainstream providers.

The 'CD' in their name stands for Community Development: a commitment to making entrepreneurship more accessible to communities that are excluded or underrepresented in business — values that resonate strongly here!

Josh offers a free business finance assessment to founders

What is meant by business funding?

Q. Let's start with the basics — what do we actually mean when we talk about business funding or business financing?

External funding for a specific objective

This refers to external funding a business owner might access in order to achieve a particular objective.

This might be where the business does not have sufficient cash to fund a particular need or objective, or they are experiencing either short term or structural cash flow shortages.

Finance as a strategic tool, not just a lifeline

Finance can also be used strategically to give a business flexibility or security. For instance, sometimes a business does have sufficient cash but wants to protect these working capital reserves, and so instead they look to access external funds and spread their costs.

Sometimes a business does have sufficient cash but wants to protect these working capital reserves.

When we talk about commercial finance we are usually referring to debt finance, meaning the money is borrowed and repaid with interest. This could include a simple loan or a whole range of other specialist solutions.

Beyond debt: grants and equity

But more broadly, business funding could also include grants and equity finance. Equity finance is a process through which a business owner offers a shareholding in their company in return for investment.

They do not pay interest for this type of finance but rather share an agreed proportion of their profit with the investor.

Funding options, and what shapes them

Q. What are the main business funding options available — and does it make a difference where you are in your journey, or whether you're a sole trader, limited company, or not-for-profit?

Matching the solution to the need

When considering funding options it is important to think carefully about your needs and identify a solution that meets these needs specifically. External finance can be used for a variety of different needs, both short term and long term.

For a business with a proof of concept and looking to scale up, finance can be used to invest in the business to grow their operations and increase capacity — thus, increasing sales. This would likely be a Term Loan, that helps spread the cost over several years to fund a long term aim.

Short-term vs long-term: it matters

Finance can also be used to address unexpected, immediate needs, such as cashflow shortages. Here the business may need to pay an unexpected bill or some wages, whilst they wait for invoices to be paid, for example.

This is just to tide them over until they get some cash in from their sales when invoices are paid — they may only need to borrow this money for a few weeks. This is a short term need.

Some facilities exist alongside your business to support you throughout the business cycle and allow you to dip in and out as you need. This is perhaps to support your business model or to act as a cushion to protect against cash shortages.

Where you are in your journey

More established businesses find it easier to access lending, as a proven track record and good traction gives lenders more confidence. But there are solutions available to new businesses, such as a start up loan delivered through the British Business Bank.

More established businesses find it easier to access lending, as a proven track record and good traction gives lenders more confidence.

Sole traders vs limited companies: why it affects your options

Limited companies are often held in higher esteem by lenders in comparison to sole traders and partnerships, and tend to find it easier to access lending. This is because sole traders are individuals, and unlike limited companies, the owner is not a separate legal entity to the business itself.

As a result, sole trader lending falls into the consumer finance space which is highly regulated.

Sole traders are individuals, and unlike limited companies, the owner is not a separate legal entity to the business itself.

Beyond bank loans

Q. Many founders automatically assume that business financing means taking out a loan from the bank — but what else exists?

Why the market has changed

Historically, the primary lenders have been banks. However, bank funding has become notoriously difficult to access in recent years, and this has led to the SME lending market to change dramatically.

The rise of alternative lenders

Business owners have looked towards alternative sources of funding. These alternative solutions are provided by secondary market lenders.The alternative finance market has exploded with new solutions over recent years — with non-bank lenders now holding a larger share of annual gross lending in the UK than high street banks.

This market continues to grow, with new lenders and new solutions emerging all the time.

Non-bank lenders now hold a larger share of annual gross lending in the UK than high street banks.

Matching the product to the purpose

Both banks and alternative lenders offer a range of different finance solutions. Some lenders focus on particular markets or industries, for example construction, whilst others focus on specific finance solutions, for example, asset finance.

Unsecured term loans tend to be the most straightforward and affordable solution for growing businesses to address longer term investment needs and spread the cost.

Working Capital loans are popular for businesses with small, short term cashflow needs on an ad hoc basis.

A word of caution

Stacking short term solutions to achieve a larger, more long term aim should be avoided — it can be expensive and risky.

Specialist solutions for particular business models

Then there are the more specialist solutions that are fundamental to helping certain business models function and operate. For example, those who need to fulfil orders and fund this themselves, and don't get paid until they are delivered, or those on lengthy payment terms with customers, who may not get paid until long after the product or service is provided.

These businesses often need longer term, ongoing credit facilities.

Discrete needs: vehicles, equipment, property

Then there are the more specific or discrete funding needs — buying a vehicle, a specific piece of machinery or equipment, a premises or property. All of these can be achieved through specific products that are tailored for this need.

The emotional side of business debt

Q. Debt is a topic that many founders have complicated feelings about. What can help founders feel more comfortable opening up conversations about business funding?

This isn't a decision to take lightly

As in personal finance, accessing a business loan or entering into a commercial credit agreement is not a decision to be taken lightly. Whilst it is the right option for many businesses, it is important to weigh up the risks and rewards for your own business.

When 'a good offer at the time' goes wrong

We often work with business owners who are in distress as a result of suboptimal decisions they have made regarding business finance in the past. What seems like a good offer at the time, can quickly lead to cashflow issues as debt repayments spiral out of control.

You may not even realise you're being targeted

But it is not always their fault — often they are just taking what they are offered. You may have noticed that founders are peppered with letters and emails from short term, high interest lenders the minute they register a new company.

Founders are peppered with letters and emails from short term, high interest lenders the minute they register a new company.

Why financial literacy — and the right support — matters

To avoid this mis selling, financial literacy is so important and working with a trusted professional can help you understand your needs and access appropriate solutions.

We position ourselves between business owners and the finance market, helping them to make informed decisions and navigate the landscape with confidence.

Getting ready to apply for business finance

Q. When should you typically start thinking about funding — and what should you have in order first?

The timeline varies — so don't leave it too late

The application process for applying for finance can take a few days or a few months depending on its complexity. If you anticipate a future finance need, work with an expert to familiarise yourself with the process of applying to ensure you set the wheel in motion at the right time.

Don't wait until a crisis hits to access finance — get appropriate facilities in place to protect against future crises.

There are lenders that can support you in an emergency but this is often the most expensive finance on the market.

What unsecured applications usually involve

For unsecured finance, the application process is usually quite straightforward. A lender will ask you to complete a form which collects information on your business and directors. They may also ask to see bank statements from the last six months of trading.

From this, the lender can access public information through Companies House and from credit bureaus to learn about your business. If public information is quite outdated, they may also ask to see some up to date management information like a profit and loss and a balance sheet.

This is usually enough for the lender to assess the perceived risk profile of your business and whether or not you can afford the lending required.

Secured lending: assets and collateral explained

For secured lending, the questions around your business and directors may take a deeper dive into commercial or personal assets and their values. A lender might want to know if your property has a mortgage, or if they are unencumbered, to learn what equity is available in them.

Here, they are essentially identifying value that they can secure the lending against with charges or debentures, which will be filed on your property as collateral for the loan.

Specialist solutions: what lenders want to know

For specialist solutions, like asset finance for example, the lender will want to learn more about the asset being financed — for example if it's a vehicle, what is the make, model and mileage. For invoice finance, for example, the lender will want to learn about your debtors and their credit worthiness.

When you don't fit the mould

Q. The funding landscape wasn't designed with everyone in mind. Is that changing, and what options exist for founders who feel conventional routes simply aren't for them?

Eligibility criteria: what lenders are actually looking at

Different loans or finance solutions will have different eligibility criteria. Eligibility criteria more broadly cover things like time trading, turnover, assets and liabilities. For example, new businesses may have access to a reduced number of solutions, as with low turnover companies.

Lenders will have their own specific metrics and calculations that they will use to help them assess applications. What these are exactly isn't usually made public. But they are usually trying to meet some affordability criteria by assessing the growth trajectory of the business and its cash management.

Why your sector or industry can open (or close) doors

In more niche or specialist finance spaces, things like the industry and use of funds will be primary factors in determining eligibility. Some lenders like to support retailers, others like the construction sector; likewise some lenders like to help businesses invest in assets or stock.

Knowing what a solution is designed for saves a lot of trouble

Often just knowing what type of solution is designed to address a particular funding need can save you a lot of trouble. A commercial mortgage can't be used to buy a car, for example.

Finding the right fit, not the most available option

There are a lot of lending solutions that are structured as one size fits all and are made available to most businesses. However, this might not be the right thing for you. Working with an expert like BCDF will help you to identify the right fit for your business.

There are a lot of lending solutions that are structured as one size fits all — but this might not be the right thing for you.

How a commercial finance broker can help

Q. For anyone curious about exploring this further — what does a commercial finance broker do, and what might that first conversation look like?

The first step is to reach out and begin the conversation with us. During this call we will discuss your needs in detail. Following this, we will create a lending proposal based on your needs, outlining the need for funding, the funding amount desired and the required finance solution.

Once we have completed a high-quality lending proposal, we target specific lenders in our panel and begin the application process. If the lenders have appetite to support, we will receive offers from them. We will review these offers with you and discuss the merits and drawbacks of each.

If you decide to accept an offer, we will work with you to pull together the necessary paperwork. Once completed, you draw down the funding and carry out your investment plans.

Speak to Josh — FREE Business Finance Assessment for Founders

BCDF is a social enterprise providing businesses with access to the funding they need to grow, and helping founders navigate finance with confidence.

Josh Rees is offering a free business finance assessment to founders — to discover what funding solutions are right for your needs, what options are available and at what rates, and how you can lower your outgoings by restructuring your existing debt.

Josh Rees, Founder and Director of BCDF, will conduct the assessment. He is a commercial finance specialist with over a decade of experience in supporting new and growing businesses to access funding. He will provide you with practical insights on avoiding common mistakes, minimising risk, and securing the right solutions, at the right time.

This is a no obligation, no strings attached offer.

Click here to complete the enquiry form and book your free assessment

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