Whether you are starting up or growing your business there are many stages during your business journey that you may be looking for funding. Funding options can be broken down into two types, repayable and non-repayable. Repayable finance would be options such as bank loans and specialist lenders, community shares and social investment; non-repayable finance would be options such as grants, donations and traditional crowd funding.
CURRENT GRANTS, FUNDING CALLS & COMPETITIONS:
Click here to view the Gov.UK website which lists specific Innovation Competitions.
Before looking for external sources of finance you should make sure you are managing your cash effectively. Aside from being able to put the available cash to best use it also sends the right signals to potential lenders and investors.
When looking to external sources for finance you need to look at your options carefully measuring their suitability and availability. It needs to be the right choice for you in light of current circumstances and fits in with the business plan. Lenders will want to see a clear business proposition and understand to your target audience.
The funding landscape has developed considerably over recent years and there are a lot of options available – some are new and some have been around for some time. Listed below are the main types of business funding, which aims to act as a brief introduction to some of the different options. It is important to do your research, understand all the implications and your responsibilities before deciding on a finance option.
GRANTS & COMPETITIONS
At the top of this page is a list of the current grants, funding opportunities and funding competitions that we have been made aware of.
This option is usually used to fund working capital and/or for longer-term investment. At any stage you are likely to need a mix of different forms and they have their advantages depending on the business’s growth plans.
Types of Debt Finance:
These loans are government back and generally offered with a fixed rate of interest and are available to businesses within the first 2 years of funding.
Often used for short term requirements to help finance working capital often at the start-up stage, usually for smaller purchases or stock. Benefits of this type of funding include regular reviews and they can be changed quickly.
These are often mostly used for longer term requirements to help finance larger purchases but are also used for working capital. For example manufacturing equipment or computers. You will need to show the lender that the business will generate the income and cash to make the repayments. Benefits include fixed interest rates and repayments that you can plan into your cash flow.
This type of funding is a direct alternative to a bank loan. Lenders are matched with borrowers through an internet based platform, and allows them to invest in your business for share in the returns. It allows for multiple people to invest in your business and each person can offer a small amount of the loan amount needed which can range from a few thousand to millions.
This covers both invoice finance and asset-based lending.
Invoice finance – Includes factoring and invoice discounting – for both finance is provided against outstanding debts and is available to businesses that sell products or services on credit to other businesses. In both options a financier would purchase the invoices (representing the debt owed to the business) at a discount, and collect the money owed. With factoring the financier would manage the sales ledger, in invoice discounting you would maintain control of this.
Asset based lending is similar to invoice finance, with funding being extended against a wider pool of assets, typically stock, property, plant, machinery as well as potentially intangibles such as intellectual property or forward income streams.
Leasing or hire purchase is used by businesses to obtain assets such as vehicles and office equipment. It is a popular solution as it allows you to get new equipment that you aren’t able to purchase outright and allows you to plan your cash flow with consistent regular repayments. It is a secure form of finance as it cannot be recalled during the life of the agreement providing you keep up with the payment.
There are two stands to export finance; it can help to mitigate risks such as default or delayed payment on exported goods and it can help to fill the gap between importing raw materials (overseas suppliers will want to be paid in advance of shipping) to when the finished product is sold. Traditional tools for export finance are: bonds and guarantees, and letters of credit
Used to assist businesses in purchasing goods (international or domestic), and is often provided for a specific shipment or time period. Until the finance is repaid the goods belong to a finance provider. The process is supported by letters of credit, bills of exchange and bank guarantees.
At an early stage, businesses may need long-term backing to fund the business through to revenue and profit, or an established business can use it to support an aggressive growth strategy. Investors are often prepared to provide follow-up funding as the business grows.
In simple terms, equity financing is the raising of capital through the sale of shares in a business. Equity can be sold to third-party investors with no existing stake in the business or can be raised solely from existing shareholders. You should carefully consider all the issues before selling a stake in your business in exchange for capital.
Equity investors take a risk acquiring shares and in exchange they can see uplift in the value of their stake if the business performs well. Often investors will have an aligned interest in your business and can bring valuable resource, such as their skill, expertise and contacts, to the business. (see also crowd funding below)
Types of Equity Finance:
Business angels are individuals who make equity investments in businesses with growth potential, either to help launch a business or help an established businesses to grow. Angels back high-risk opportunities, with the potential for high returns and do this mainly through a syndicate or group. It is important for the angel to understand the business, product, or sector as the angels can bring valuable first-hand experience of growing businesses so take some time to find the right angel for you. It is also important that you all agree on what everyone wants out of the relationship, what you expect from each other and have a contingency plan should anyone want to terminate the agreement.
Venture capital finance is in essence the same as an angel, but instead of individuals if would be a firms investing in your business. They also want proven track records, and so rarely invest at the start-up stage and are unlikely to get involved in the day-to-day running of the business, however they will often help focus the business strategy. Securing VC investment can be a complex, costly and time-consuming process. A detailed business plan is a must. And legal fees will be incurred through the deal negotiation, regardless of whether investment is ultimately secured.
This type of funding can come under both repayable and non-repayable finance and has become increasingly popular in recent years. Usually accessed via online platforms, it involves the collective efforts of often large numbers of people networking and pooling resources to support projects, ventures or initiatives of others. A profile or website is set up explaining the offering and the amount you want to raise and is promoted using networks such as social media, friends, family and colleagues.
There are four different types of crowdfunding:
- Reward-based: You would pre-sell a product or a service to launch a business concept without incurring any debt or sacrificing any shares or equity. Projects that are launched for contributions would compensate their investors with some like a t-shirt, experience, or product of what they are creating as a thank you.
- Equity-based: where the monetary exchange is for company equity or ownership, not goods and services.
- Credit-based: also known as ‘peer-to-peer lending’ and is used on more of a personal level. It is essentially a loan at a reasonable rate funded by multiple investors.
- Debt-based: the lending of money to an individual from an investor in exchange for interest.
- The Business Finance Guide is an independent source of free, comprehensive information about the financing options available to growing businesses.
- Devon Funding News – Maintained by the Economy & Enterprise Service of Devon County Council. Funds have been categorised into three main sections: business, social and environment. There is a further section that highlights specific Lottery and European based funds.
- Start-up Loans
- The BVCA (British Private Equity & Venture Capital Association)
- Venture capital investment and information
- Peer-to-Peer Finance Association
- Finance & Leasing Association (FLA)
- The Export Working Capital Scheme assists UK exporters in gaining access to working capital finance in respect of specific export contracts. Find out more or book a consultation with an export finance adviser
- Better Business Finance – a directory to help you find alternative finance providers and business bank accounts
- Alternative Business Funding – A web portal, providing a free and easy way for SMEs to find alternative business funding — especially those with an interest in the non-bank business funding sector
- Finding Finance – a service provided by Responsible Finance, who make fair and affordable loans across the UK
- The UK Business Angels Association (UKBAA)
- Angel Investment Network –
- UK Crowdfunding Association promotes the interests of crowdfunding platforms, their investors, and clients
- Crowding In – a free website that will help you choose the right crowdfunding platform for your project
- Funding Central | Funding search tool for the voluntary and community sector. There is a charge to use this service for organisations with an annual income over £100,000.
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