In today’s business environment, there is an ever growing range of choices available for small businesses when it comes to raising much needed funds. Changes to bank lending policies have made it more difficult than ever to access traditional lending so the issue on how to sustainably fund a new business is trickier than ever. Thankfully, there are now more options available than ever before as outlined in the following article.
For any business that’s looking for source additional funding, it’s important that you get the right advice and support from a trusted accountant to ensure that you’re utilising the best source of funding for your particular circumstances. Maddock’s Accounting & Advisory can assist clients at every step along the process for obtaining additional funding that enables clients to grow their business and achieve their goals.
Contact the Maddock’s Accounting & Advisory team here to find out how we can help.
“Venture capital funding
Many entrepreneurs hesitate about venture capital (VC) funding as they can be reluctant to give up equity. But there are many advantages to this route. Besides, owning 100% of a company with no funds is not much use.
A big plus for VC funding is that it doesn’t involve regular repayments like a bank loan does. For start-ups with irregular cash flow this means that any money that comes in can be ploughed straight back into the business. Also, it lowers your personal risk as, unlike with a loan, you won’t have to offer a personal guarantee to the investors if things don’t work out.
Finally, the best VCs will help open up doors and new networks to you, helping to accelerate your growth and putting you firmly on the right track.
Angel investors
Angel investors are wealthy individuals who provide capital in return for equity or convertible debt – think Dragons’ Den or Shark Tank to get an idea.
One advantage of this method over VC funding is that you often get a lot more one-to-one support and personal mentoring, especially if they made their money in a similar field to yours. They also tend to ask for lower amounts of equity. On the downside, angels don’t always have as deep pockets as VC backers.
It’s common for angel investors to support local initiatives, so if your business has a particular local angle then it could certainly be an avenue worth exploring.
Grants and tax breaks
Thousands of SMEs are missing out on funds by not realising they are eligible for tax breaks or government grants. The UK government is actively looking to support businesses that are making valuable research and research contributions to the UK economy.
R&D isn’t just done by scientists in white lab coats in laboratories, it can be done by a start-up building a new app or an SME finding an innovative solution to a workflow process. Firms like RIFT R&D can help SMEs find out if they are eligible for tax breaks and save them tens of thousands of pounds in the process.
Cash advances
The rise of fintech has been fantastic for entrepreneurs. Tech start-ups are constantly building upon and expanding services traditionally the domain of the high street and usually offer them at a cheaper rate and with much less hassle.
Many fintech firms provide multiple services that would usually come from a bank and Swedish firm iZettle is a prime example. It started off by enabling the smallest of entrepreneurs to be able to afford to take card payments and now supplies everything from sales software to quick access to cash. By analysing an SMEs sale history, iZettle offers quick loans that are paid back in regular instalments based on the volume of your future sales.
Unlike banks, advances are based on a fixed fee, not interest rates. It’s one more example of funds not available before fintech.
Peer-to-peer lending
Peer-to-peer lending (P2P) platforms match SMEs directly with individuals or organisations who are willing to lend money. One of the most well known in the UK is Funding Circle, which was set up in 2010 directly to address the problem of SME funding access. Its since facilitated over £850 million in loans.
Applicants submit their proposal and investors bid via a marketplace to support the businesses that appeal to them. Loans tend to be quick and made up of many small investments, which is why investors find it so appealing (they can spread the risk). P2P is a model well worth considering if speed is a major factor for you.
Crowdfunding
Crowdfunding, which allows individuals or organisations to invest in start-ups in return for equity, has become such a part of the mainstream that the Bank of England has claimed UK platforms like Crowdcube are making banks ‘obsolete’. Instead of asking a few people for large sums of money, with crowdfunding you are asking thousands of people for small sums of money.
Entrepreneurs pitch their ideas online to the community, set a target and see if the funds come back in. It’s possible to raise huge amounts in a short space of time. Other advantages of crowdfunding is it can help get your business plenty of exposure and a wealth of useful feedback. Certainly an option if you are comfortable with putting your idea out there for all to see.
Bootstrapping
Alternatively, you can bootstrap your way to success. This is all about building a business with no external input and, for some, the digital world has made this route more attractive (and feasible) than it used to be. So much great software and tools exist to help a driven entrepreneur pull themselves to the top via creativity, smart tech know-how and sheer force of will.”
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