Given the endless roundabout of sweating, shaking, stammering wannabe entrepreneurs willing to put themselves under televisual scrutiny in the Dragon’s Den, you might think BBC2 is the only source of funding available to businesses.
But in fact, there are plenty of alternatives to Duncan Bannatyne’s gimlet gaze – take a look and select the best for your business.
1. Get longer arms and shorter pockets
The easiest way of funding your business is to gather together every penny you’ve got. Cash in all your savings, sell anything you don’t want, leverage your assets and look down the back of the sofa.
● Investors and lenders will be more impressed further down the line – it proves you’re committed
● There are no charges (unless you’ve remortgaged your house)
● You keep all the profits and all the ownership of your business
● Clearing yourself out leaves you with no reserves to fall back on
● If you remortgage yourself, you leave your home open to repossession if you can’t make the repayments
2. Bank of Mum and Dad
Friends and family can be a great source of funding. They’re often delighted to help – but you need to decide on the terms. Will you pay any interest? Will you give them part of the business? When do they expect to be repaid? You need to talk about these issues upfront, to avoid any arguments later on.
● You’ll probably get better terms than the bank would offer
● They’re likely to be supportive
● You have to be extremely careful about terms – it’s so easy to fall out over money
3. Take it for Granted
Grants are few and far between these days, but you might get some cash for at least one aspect of your start-up. The government have a great list here, which will start you off.
● You don’t have to give away any equity in your business
● You don’t have to pay it back
● You might have to jump through a lot of hoops to get the cash
● The money might be ringfenced for a certain aspect of the business – building a new website, for example
● Because grants tend to be specific, they might not be enough to cover all your needs.
4. Bank on it
If you can get the bank to loan (no mean feat in itself), this is a tried and tested way of borrowing cash.
Because banks have been reluctant to lend during the recession, the government has introduced a number of initiatives to help, including the Enterprise Finance Guarantee Scheme. The money still comes from the bank but the government underwrites 75% of it, which makes you a much more attractive risk, so the computer is more likely to say yes.
Another one worth looking at is the Start Up Loan scheme, which awards low-cost loans, business mentoring and other support to qualifying individuals. Loans are paid back within five years, on a fixed rate of interest.
● You know exactly where you are with it and how much you have to pay each month
● You don’t have to give away any equity in your business
● Just getting a loan can be tricky, especially if you haven’t racked up any business track record. You’ll need a watertight business plan, for starters
● You’ll pay interest – sometimes a fair whack
● The bank manager is likely to want to see how much of your own cash you’re prepared to invest, before he’ll give you some of the bank’s
5. Try loving angels instead
Business angels are private entrepreneurs who usually invest between £10,000 and £750,000 at a time into businesses.
This is more or less the Dragon’s Den model, which means you’re likely to get input and advice from your angel, as well as cash.
● Match-make your business with the right angel and you could get invaluable experience along with the chunk of cash
● Angels aren’t the bank, or corporate lenders, so they may plump for opportunities the bank would shy away from – and they can make a quick decision
● You won’t have to pay interest or make regular repayments
● Investments are usually between £10,000 and £750,000 – if you want more (or less), this route isn’t right for you
● You’ll have to give away part of your business – which means part of the profit and part of the control
6. Crowds can be good
Crowdfunding is a fast-developing sector, which means it can be confusing for those trying to access it.
In general, you set your target and attempt to attract investors to your project. If you don’t hit your target, you don’t get any money.
There are a number of online platforms, but broadly three different types of crowdfunding:
Kind people invest and get nothing out of it except the good feeling of having helped. You might give them freebies or a credit – and you should definitely keep them updated about your progress
This is sometimes called peer-to-peer lending or lend-to-save. Investors put their cash in and you pay them back with interest.
Money is given in exchange for a share in the business.
Find out more from the UK Crowdfunding Association.
● Free money! If you manage to get involved in donation/reward crowdfunding, you won’t have to give away equity or pay interest
● Debt or equity funding can raise up to £1million for businesses
● Experienced investors are increasingly using the platforms – and that can mean a really useful contribution to your business
● Keeping in touch with multiple investors – possibly thousands of them – can be wearing and time-consumer
● If you don’t hit your target, you get nothing. You might put in a lot of work for nothing
● You have to be very open – not everyone likes plastering their financial information all over the internet
● For equity or debt crowdfunding, you’ll have to pay interest or give away some control and profits.
7. Listen to your inner invoice
If it’s just cashflow that’s the problem, invoice funding, or factoring, can be a good way of bridging that gap temporarily.
It gives you access to working capital while you’re waiting to be paid by your customers.
● Great for cashflow issues
● You probably won’t plunge into a pit of debt because the cash is linked to the money you’re already owed
● It gives businesses the opportunity to accept new orders and continue to grow, where otherwise you might grind to a halt
● Be careful who you use – some unscrupulous invoice financiers can hit you with hidden fees and personal guarantees
● Factoring providers will chase invoices on your behalf, which can damage customer relationships.
8. Online Pawn
Asset-based peer-to-peer lenders work, essentially, as online pawnbrokers. They may well lend money where others have said no, but you’ll have to secure something against the cash – jewellery, watches, cars, antiques etc. This route usually lends from £500 upwards.
● If you’re confident, and have a suitable item to borrow against, it can be a fast, effective way of borrowing in the short term
● Obviously if you don’t pay back, you’ll lose your asset
● It’s expensive. Lenders will usually set high interest rates and charge admin fees.…