What is the right source of funding for you?

OpportunitiesWhether you have just launched a business or have kept it going for a while now, you want to boost the chances of success by having access to the right type of funding at the right time.

To kick-start a great idea, then to develop, expand and export internationally, businesses need funding boosts at various stages. At Berley, our small business accountants and business growth specialists work relentlessly with entrepreneurs across London, helping them with financial decisions.

As funding is an area that many small business owners seek to be informed in, in this article, we aim to highlight the different types of funding available and outline the steps they can take to increase their chance of securing funding.

1. Self-funding and love money

Turning to their own personal savings is often the first place most entrepreneurs look to find funds for their start-ups or when they are ready to take the business to the next level. The money could be from long-term savings or from selling personal assets.

Some entrepreneurs may also turn to their parents, family members or friends to borrow money. Known as love money, this form of funding is based on trust and may have highly flexible repayment terms.

While dipping into personal savings and acquiring love money are usually more straightforward than going to banks and filling up forms, they do have several disadvantages including:

  • Self-funding poses a high personal risk.
  • Love money may lead to ruined relationships, particularly if they have given you a significant portion of their savings and you cannot repay them due to losses.
  • Personal funding and love money are also finite, while the business may require several rounds of funding throughout its journey.

2. Start-up loans

Assuming this is your first venture, then naturally it is worth looking at start-up loans backed by the UK government. Aiming to help entrepreneurs kick-start their business ideas, the scheme provides loans of £500 to £25,000 with a fixed low 6% interest per annum. It also includes free mentoring from experienced advisers to help you set sail. You can find out more at https://www.startuploans.co.uk.

3. Bank loans

If your business has a good credit history and a healthy business plan that demonstrates robust projections and profitability, chances are, your bank loan applications may be easily accepted, given that many banks compete to help small businesses in the UK.

For instance, HSBC offers Small Business Loans from between £1,000 and £25,000 with 7.4% APR Representative. There is a list of requirements on their site as well as an Eligibility Checker that you can use to see the likeliness of attaining a loan from HSBC. In addition to HSBC, Barclays also offers unsecured business loans of up to £100,000, which you can learn more here. If you are considering bank loans, shop around first.

4. Secured finance from a specialist lender

If your loan application is refused by a traditional bank, you may be able to obtain finance from a B2B specialist lender. For instance, Nationwide Corporate Finance can offer business loans to companies without a credit history, so if you have just launched a new venture and have not had a chance to establish any credit history, this option may suit you. Expectedly, this type of loan may come with a higher interest rate. But once you successfully secure the finance, you will be able to build your credit history if you keep up with your monthly repayments.

5. Angel investors

An angel investor is a high-net-worth individual who invests his/her money in a business with high growth potential typically in exchange for ownership equity. In the UK, angel investors abound, and many of them are successful, experienced entrepreneurs who can offer honest advice and guidance – after all, as they become equity partners, your success is their success too.

There are many sites which match budding entrepreneurs with angel investors, including Angel Investment Network, Syndicate Room and Angels Den.

6. Venture capital

Venture capital is similar to angel investing in the sense that it is a form of equity funding. But instead of an individual angel, you have a group of investors belonging to a venture capital firm who looks for companies with strong, fast growth which they can take to list in the London Stock Exchange sometime in the future.

To attract venture capitals, you need a solid business plan that shows high profitability and substantial growth potential. In return, they will inject a considerable amount of money into your business and work closely with you to make it successful. Top VC firms include London Venture Partners or LVP, Spark, and Episode 1.

7. Crowdfunding

In the last few years, crowdfunding has become a hugely successful alternative addition to the UK finance scene. Crowdfunding is where individuals or small businesses seeking capital can present their project to the online community and ask for donations to reach their target. The donations are usually small amounts of money and the supporters are often offered a reward in return; for instance, if the funds are being raised to get a book published, the reward may be a copy of the book. This is an especially attractive option if you are seeking investment for a creative project, as the majority of the campaigns on crowdfunding sites are creative-based. The most popular crowdfunding sites are Indiegogo and Kickstarter.

8. Peer-to-peer lending (P2P)

Peer-to-peer (P2P) lending is similar to acquiring a bank loan, but the loan comes from individuals and you, the borrower, may receive a lower interest rate compared to the rate from a bank. There are various P2P lending sites that act as a middleman between lenders and borrowers including Funding Circle which claims to approve a new loan every five minutes (on the average) and has helped 52,000 established small businesses access finance in the UK.

9. Grants

Appearing in the form of cash, equipment or tools, grants are a great way to boost your business and there are a few schemes that you should know about. The government’s ‘business finance support finder’ directory lists over 300 direct grant agencies across the UK, aiming to help you find the right scheme for your start-up or business, including many schemes directed at young people and women to increase their opportunities.

Increase your chance of securing business funding

Before you start preparing a business plan and financial forecast, talk to a business growth specialist like our team here at Berley who has gone through this with other companies before. We can help you prepare the financial data and run through your presentation, making sure that what you pitch will be relevant to your investors.

When it is time to face your investors, the following tips may prove useful:

  • Compile your financial data into easy-to-understand charts.
  • Keep your pitch or presentation short, focusing on vital aspects like how your services or products will help your potential customers. Do not ramble.
  • Let them ask questions. Asking questions is a way of showing interest while seeking clarification and obtaining information.
  • Apart from cash, check how they can help you. Investors usually have useful connections and are well-placed to help your business grow.

Trust Berley for expert business advice

At Berley, we believe in helping entrepreneurs with their finances, including funding advise that will help the business succeed. Kick-start the conversation by calling us on 020 7636 9094 today.

In addition, our small business accountants in London can also support your business in the following areas:

  • Tax advice and tax planning
  • Completing tax returns
  • VAT
  • Payroll and PAYE
  • Management accounts
  • Bookkeeping
  • Company audit

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.