Alternative sources of financing
May 19 2009
Email a friend
As banks are pulling the rug out from under business owners’ feet, SMEs need to think outside the box when it comes to raising finance. Only recently, BDO Stoy Hayward released figures showing 36,000 small businesses are expected to fail by the end of the year. So here’s some funding alternatives to avoid being one of those statistics.
Savings and friends
This may well be your best option in the current climate and plenty of companies use this strategy in the early years, though be cautious of the amount of equity you may feel obliged to relinquish in exchange.
Enterprise Finance Guarantee scheme
In January 2009 the government introduced the Enterprise Finance Guarantee scheme to help small businesses facing temporary cash flow problems – replacing the popular Small Firms Loans Guarantee scheme. In theory, £1.3 billion has been set aside to be given out in loans or overdrafts (with 75 per cent of this funding guaranteed by the government) to small businesses with a turnover of up to £25 million. The plan was for loans from £1,000 to £1 million to be given out by high street banks. However, very little of this money has yet to make its way to the small businesses it was designed for.
Business angels
These are usually high-net-worth individuals, operating either alone or in syndicates, who are looking for suitable investment vehicles. They have become an increasingly popular option, as banks have proved so reluctant to lend to SMEs. A new, web-based concept of ‘online dating for lenders and borrowers’ is now starting to emerge where private lenders are matched with small businesses looking for funding online. For more information, go to the British Business Angels Association's website.
Early-stage investment funds
Available, for example, through Finance South East in the SEEDA region, with debt funding of up to £100,000 for growing businesses. These appear to have been relatively unaffected by the recession as the organisations who offer them are keen to provide funds to enable small businesses to stay afloat. However, it is likely that the providers are now stricter about who is eligible for such loans, and the ease of getting such funding is likely to have decreased significantly.
R&D tax credits
The research and development (R&D) tax scheme aims to encourage investment in technological R&D by means of incentives delivered through the tax system. These incentives take the form of tax credits or relief against eligible R&D investment.
Raising finance will always be a challenge for business owners and never more so than in this market. However, if you have a business that is scalable and market driven, has intellectual property rights and a strong management team and you know how to make the most of the options available, then you will improve your chances of finding a funding solution in these challenging times.
Barclays Business Start Up Account
Everything you need in one place from help with planning to getting more customers, to FREE seminars and a credit checking service to help you get paid quicker. Plus, up to 2 years FREE banking (conditions apply). Apply online.
Comment by Gary Burgess
Thursday 10th September 2009Start a business, don't start a business? Out there everybody wants to help you start a small business, or do they? The main question is what's in it for them. "Them" meaning banks and other financial institutions. Everybody wants to help you raise capital for your business, but they all want paying for the service. Finance brokers prey on people like myself by offering the world, sending numerous emails and texts telling you that they have the perfect lender for you, but it'll cost a brokers fee of £59.00. They send you some links to apply for loans which anybody with half a brain can find on the net. You don't get a loan but nevertheless they still take their fee of £59 off you. Come on FSA, take your blinkers off and sort out these vultures. As for government backed loans – what a joke! Really, if you have a good business plan to start up a small business, then this is waht to do with it:. 1) Make it extremely thick; 2) Give it to a friend or a family member; 3) Get them to roll it up and then severely beat you round the head with it for weeks on end. I say this because this is how it feels when you are trying to raise a few quid to start up a business in this day and age. Banks want your money, insurance companies want your money. Hell, everybody wants your money but nobody wants to give you any. I can honestly put my hand on my heart and say that I have been trying to get funding for over a year now. Undeterred, I have resigned myself to thinking I am a raving lunatic for having such a good business idea. In fact, I have even been making money during a recession, even though it's only small amounts, but nevertheless I am making money. If I could get a cash injection then I could make even more. But according to the powers that be, this is only wishful thinking. I buy stock every week and sell it every week but only small amounts because that is all I can afford. I take nothing from it and keep re investing in the business. Ebay get their cut, paypal get their cut and I get what is left. This may be a vicious circle, but it works. So my advice to anybody who reads all this rubbish out there on the internet is that there isnt help for you, unless the advisers can help themselves to your hard-earned cash. Sod the banks and keep your money in Paypal – you can get at 24 hours a day, 7 days a week. Sod public liability insurance, council tax etc, etc. Do it all online. When you do make it – because some of us will – all your business and profits will be yours. Yep, this does sound like the ramblings of a bitter entrepreneur. In fact, it is. So business Vultures, Business Devils – there you have it, the Truth is out....
Report this comment
Comment by Lorna Campbell
Monday 14th September 2009Hard slog but yes I guess that is where you are with it. Who pays for carbon trust? But they can only help the real big guys, try and see.anyway keep at it. Good luck Lorn
Report this comment
Comment by Andrew Trowell
Thursday 17th September 2009You can ignore the banks and any charges they place on you and use your OWN pension to support your business. This shouldn't be used as a bail out, but can be used to either support your business and expansion or a new venture. Have a look at the website www.howmuchdoineedtoretire.co.uk they have some info' there that points you in the right direction
Report this comment
Comments [3]