How to find funding for your small business

Here is an exhaustive list of all the small business funding options you should pursue for your company's growth.

Small business funding can be achieved by mixing R&D tax credits with the Seed Enterprise Investment Scheme

Small business funding can be achieved by mixing R&D tax credits with the Seed Enterprise Investment Scheme

To plan how you will finance your new venture, you should be able to work out how much small business funding is required to begin trading, plus cover all costs and running expenses for the first few months, or until you think you will be start generating sufficient revenue.

One of the main reasons that new businesses fail is because of cash flow. Either income is overestimated, or not enough money is available to start with, meaning the business is unable to get through the initial start-up period and funds run out before its able to grow.

Sometimes things do not go to plan, so it is important to budget some extra funds for emergencies to give yourself the best chance of success.

Once you know how much you need to start and if you are unable to fund it yourself, you will need to look at the various ways in which you can raise the start-up capital. Most lenders and investors will expect you to invest some of your own money – relying on them to fund it all could make the business plan appear risky.

Always discuss options with an accountant to ensure the capital introduced is tax effective.

Write a business plan

It is likely you will need to show a business plan if you plan to approach a bank or other lender for help with small business funding. Part of the business plan is producing a cash flow forecast for the first few months, however some lenders will want to see 12 months to work out when you can repay the borrowing. Even if you do not need to borrow money, writing a business plan is a helpful way to ensure you have not missed anything and it can be useful to refer to later. Many banks require a business plan just to open a business bank account. There are many template business plans available online.

Bank loans and overdrafts

These are two of the most common ways to gain small business funding and you could look to apply at the same time as requesting to open a business account.

Credit card

An easy way to pay costs is to make payment using a credit card taken specifically for the business. Use the card only to cover business expenses and the statements will be a useful record of expenses to help when you do your accounts.

Remortgaging personal assets

If you own a property with substantial equity, a remortgage or second mortgage may be a way of introducing long-term capital. This will of course increase your monthly outgoings, and if the business struggles or fails could put the property offered as security at risk if you fail to keep up the repayments.

Friends and family loans

If you have any friends or family who have savings that they may prefer to invest in something, discuss your plans with them and see if they would like the opportunity to get involved.

Business partner

You could consider a business partner to join in on your business venture. By doing this you could benefit from someone else’s knowledge and help in addition to the funding they bring. Make sure any potential partner understands exactly what you want the business to be about and shares the same vision as you. You may wish to seek funding elsewhere if you risk losing the freedom to direct the business in the direction you want. Making it a success is likely to take a great deal of your time and it is important to enjoy it and stay motivated.

Asset finance

You and your business may have assets from which you can release cash. For example, a printing press, which you value now at £20,000, might be suitable for a loan of £15,000 over five years. This will lock you into monthly payments and you cannot dispose of the asset without repaying the lender.

Commercial mortgage

You could take out a mortgage to purchase a commercial property, or to free up equity to use as cash if you already own one.

Bridging loans

A ‘short term’ finance facility for at least £25,000. Secured on property over a term of usually no more than 12-18 months. You need to be sure about how you are going to repay the facility before or at the end of the term. A useful method of finance to bridge cash flow gaps or to provide funds to enable fulfilment of large orders.

Hire purchase or leasing

A way to finance vehicles, computers or equipment needed to start, expand or modernise a business.

Factoring/invoice management

If you are raising invoices you can consider invoice discounting. The lender will look at the type of business you run and the debtor book. They may then advance 85 per cent of the money outstanding and a similar amount on each new invoice you raise. However, if the invoice isn’t paid within a set period, often 60 days, the debt is transferred back to you. There is a service charge and interest for the scheme, they don’t take the missing 15 per cent.

Credit union

An alternative to a bank or building society, you can apply for finance at a credit union.

Enterprise finance scheme

A government scheme to help fund small businesses. May be able to help if you have been declined by another lender due to security.

The Prince’s Trust

Over 80,000 young people have started up their own business with help from The Prince’s Trust. To qualify for this scheme, you must be a UK resident aged 18-30, unemployed or working less than 16 hours a week. They provide business advice and help with small business funding.

Job Centre

If you are unemployed, the Job Centre may be able to help with funding your new business.

Crowdfunding

Crowdfunding has become successful and popular with businesses looking to expand. They will often require two years trading figures. You can approach a funder who in turn will ask many investors for a small amount of money to back your ideas. For example, an investment of £50,000 might be met by 1,000 investors to spread the risk for each investor.

This article was supplied by KIS Finance

Further reading on small business funding

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