Funding Small Business

Many small business entrepreneurs get their initial injection of capital from those who are close to them.  Your closest and dearest may be ready to support you by contributing money to establish or build your business. In exchange, you may be able to give them a share in the business or free merchandise. Proceed with caution if you choose this path since it may jeopardise your friendship or family ties. Both sides should be extremely clear about what’s being discussed and if the funding is a gift, loan or investment. It is a risky approach to funding your business. You will be able to negotiate the interest rate required (depending on how cash-strapped they are), but once you start borrowing money, this can tie you into a long-term financial relationship that might not fit with your growth plans. Consider setting out a written agreement and getting independent legal counsel.

Many funding programmes give incentives to small enterprises. Their eligibility ranges from business founders to existing organisations wishing to innovate or grow internationally. The primary benefit of small business grants is that you don’t have to pay them back, but finding them might take a lot of studies, and they can be difficult to qualify for. There may be limits on how the money may be used, and you may be forced to match the grant. If you get a £5,000 grant, you must match it with another £5,000 yourself. Funding is available from local councils, private investors, banks and venture capitalists, charities and NGOs or other specialised programmes. Small business grants may be found by searching the Government’s business finance database or contacting your local authority.

While the UK Government may not offer commercial loans to start your business, they do provide a Start-Up Loans and small business loan scheme (SBLI), which is managed by the British Business Bank. Subsidised interest rates are offered as part of this scheme for businesses with up to 499 employees, and there are several private banks that offer suitable small business loans. You must be above the age of 18 and a resident of the United Kingdom in order to apply. Any UK-based business you’ve established (or plan to start) must be under two years old to qualify.  As part of your loan application, you must include a business plan and cash flow projections. Along with the funding, successful candidates receive 12 months of free mentorship. Other criteria for eligibility include the applicant’s legal permission to work in the United Kingdom, as well as their ability to articulate their goals and the rationale for their loan application. You must pass a credit check to obtain pass affordability check.

The use of crowdfunding has grown tremendously in recent years, and it’s no wonder why. This method of fundraising for small businesses offers a great way to get potential customers on board with your product or service, as well as a quick way to raise capital.

There are various sorts of crowdfunding: reward, equity, and peer-to-peer lending. When you ask for money for a project or product in exchange for a non-monetary reward, such as one of your items, you are engaging in reward crowdfunding. Equity crowdfunding is the practice of raising funds by selling a portion of your business’s equity to the money. For businesses seeking big sums of funding, this is a better alternative than reward crowdfunding. Popular equity crowdfunding websites include Seedrs and Crowdcube. Attract tax-exempt investors through the Seed Enterprise Investment Scheme. Peer-to-peer loans are when a person or business lends you money for interest but does not take a share in your business or any other financial stake.

Venture investors (VCs) invest in early-stage businesses, but they put up bigger sums of capital with the expectation of seeing a huge return. In other words, they seek businesses with strong growth potential and want a larger portion of the equity. Most VC funds come from huge organisations like private pension funds rather than from the investors’ own pockets; instead, they utilise the money to make more investments. They frequently take a seat on the business board.

Series A, B, and C rounds of VC funding are granted to a company commencing at the seed stage. VCs are also aided by SEISS and EIS. Venture capital investors might be hard to track down. Contact the British Private Equity and Venture Capital Association for help finding them (BVCA).

For small businesses, traditional bank loans are still the most common form of external financing. You may borrow from major high street banks and upstart ‘challenger’ banks.  Just like a personal credit card, a business credit card gives an agreed amount of credit you may use to make purchases and payments. They may be handy for managing cash flow if you are waiting for a customer to pay an invoice and to access funds at short notice. Interest rates and credit limits vary based on elements such as your business’ profitability, how long you have been trading for and your credit history. You should research into and utilise price comparison tools to ensure the most effective offer.