So here are 5 common sources of finance that can be considered that may individually or in combination be suitable to help you execute your business plan:
Grants
These are most peoples first and most desirable option, mainly because it does not need to be paid back.
Most state aid grant provisions have similar basic criteria when you are researching its availability. The key factors are: location (e.g. postcode) the sector you operate in and what you want the money for. They invariably require match funding, normally 50% or more and often specific in what it can be used for e.g. Equipment, training or design work. In the case of Privately managed funds like The Princes Trust who will have their own criteria for eligibility which can be very different from other providers e.g. age specific or employment status. These can in some cases be provided as a combination of grant and loan (low interest).
There are a number of ways to identify grants but the simplest way is to use aggregators of the current provisions. Because funding is constantly evolving or changing it is difficult to keep up with what is going on. However there are services that make it easier to identify what might be available in your area. For example www.grantnet.com and www.j4b.co.uk which are both free to use but do require you to register. Once you identify potential opportunities you will be able to contact individual providers to discuss eligibility in more detail and get application forms. It is almost certain you will need to submit a viable business plan as well. Keep in mind that Grants do not normally retrospectively fund project costs; in fact it is usual for you to have to pay the whole costs and claim back the awarded funds back upon project completion.
Crowd Funding
Crowd Funding is growing in popularity as an investment option. It is an opportunity to solicit investment through social media avenues and attract funds to your project/ business via the general public. This type of funding has proved to be successful in the US and is now picking up pace in the UK via organisations like www.crowdfunder.co.uk and www.crowdcube.com. It is particularly suitable for creative businesses and companies that can demonstrate their viability in a visual manner. Especially businesses that have strong internet skills and can raise awareness via social media channels.
Business Angels
Business Angel can be a very useful and very flexible way of financing a business. It is investment coming from high net worth individuals who may be interested in supporting a viable cause (typically starting £10, 000) and is often appropriate to business ideas that may not get loans or other forms of finance. A business angel can be flexible in nature and may be able to add value in other ways e.g. hands on involvement or skills contribution. This area of financing is not very well regulated and relies on individual relationships. However there are avenue to investigate further and get support for example: The British Business Angel Association www.bbaa.org.uk and Growth Investment Network www.ginem.co.uk
Venture Capital
Venture Capital has been proven to be a great option for business that can demonstrate a high growth potential. Often the investment funds sought start from £150,000 and over. Venture Capital organisations will almost certainly have a seat on the management board to contribute to the direction of the business. This is mainly done in an advisory capacity rather than in an active operational management capacity. To approach a venture firm a proposal document is required to outline the business case and later a business plan. The proposal would typically only be a 2-5 page document, including business idea, market potential, financial potential, about the management team and in some case an exit plan. To identify suitable venture providers then a variety sources are available. For example: established accountants in your area, local or speciality venture firms via associations like: British Private Equity and Venture Capital Association www.bvca.co.uk or purchase the directory of Venture firms in the UK via www.bvca.co.uk/Member-Directory
Loan
Loans are the best understood funding options by the public at large as it is commonly used for personal and business.
Personal loans are not suitable for all business uses but maybe the easiest and only option for some especially if the business case is difficult to prove to a high street lender. You normally need a clean credit history, to be a home owner or demonstrate a regular suitable income base but it can also carry a lower interest repayment premium than a business loan.
A business loan is the most commonly used loan option for start-ups and growing ventures. In most cases equity or matched investment (50 % or more) is required to be in place with a viable business plan before an application will be considered including government guaranteed loans (75% of the loan). See participating lenders for Enterprise Finance Guarantee (EFG) www.bis.gov.uk/policies/enterprise-and-business-support/access-to-finance/enterprise-finance-guarantee. The EFG can be a more expensive option than a straight bank loan but is an option for businesses with no security.
Asset finance can also be considered with a similar arrangement where capital equipment can be purchased and set against the debt as equity until paid off. This can be arranged with any bank or lender offering such services.
An overdraft facility is a flexible option and great for short term financing needs but can incur a higher interest charge than a loan but this is worked out daily so can be a wonderful and flexible option. However, with all of the above it is worth mentioning that being a Limited Company will not in most cases protect you from personal liability from defaulted business loans as is commonly believed.
For both personal and business loans it would be advisable to get your credit report prior to making an application to identify your status and the level of borrowing your circumstances will allow. For example www.experian.co.uk or www.equifax.co.uk
USEFUL LINKS FOR BUSINESS STARTUPS
For business advice goto: www.nbv.co.uk
For business mentoring goto: www.evolvementoring.co.uk
For supported office space & virtual office facilities goto: www.mercuryhouse.org.uk
