The A-Z of finding funding for your business
As the UK continues to witness record numbers of people starting and growing a business, ensuring funding flows to these businesses remains a hot topic.
The past five years have been filled with innovation when it comes to new and alternative sources of funding for entrepreneurs. We have seen the rise of crowdfunding and peer-to-peer lending, alongside the launch of Start Up Loans and opening of corporate backed accelerators.
High street banks continue to play a critical role and the government backed British Business Bank is ploughing millions into proven lenders to ensure cash gets to the right companies.
We’ve profiled a number of sources of finance for your business can access. Whichever form of funding you choose, be sure to take advice from professionals including accountants and finance experts.
Raising investment from angel investors means accessing capital as well as hopefully useful industry contacts who will support the growth of the business.
There are plenty of funds and investors eager to back good ideas. The government’s made it financially attractive for angels to invest. The Seed Enterprise Investment Scheme (SEIS) offers up to 50% income tax relief on up to £100,000 of investment in companies less than two years old and exemption from capital gains tax on a sale. The Enterprise Investment Scheme (EIS) offers up to 30% tax relief to investors for companies up to seven years old.
To be a qualifying company for either EIS or SEIS, visit the government’s website to ensure you meet the criteria and complete an application. The approval process can take a few weeks, so it's advisable to do this before approaching investors.
You can borrow money, which is secured against assets you own. According to figures from UK Finance support for businesses through invoice finance and asset based lending at the end of 2018 stood at £22.7 billion, some two and a half per cent higher than the same period in 2017.
In the final quarter of 2017, £5.6bn of lending was approved by the high street banks for small businesses, which shows banks are hungry for your business.
TSB offers 25 months free day-today banking and support from a relationship Manager. Subject to keeping your account within agreed limits and not going overdrawn without arranging it first.
In addition, TSB has partnered with Enterprise Nation to help boost the digital capability of small businesses and entrepreneurs across the UK. Its parent, Sabadell, has committed to making up to £100m in funding available to invest in small businesses and start-ups across the UK.
Compare rates and products at the banks and choose the one that will see you through your journey from start-up to growing business.
Big Lottery Fund
If you run a voluntary or community-based business the Big Lottery Fund could be right up your street. It offers lottery grants of between £300 and £10,000 and you can view funding options and organisations who have received grants via the website.
Big Society Capital
One of the most significant developments in funding for the social enterprise sector is the creation of Big Society Capital. It’s the world's first social investment bank with a funding base of £600m. Big Society Capital works by investing in intermediaries who directly fund social enterprises.
British Business Bank
Describing itself as "a government-owned business development bank dedicated to making finance markets work better for smaller businesses" the British Business Bank steps in to increase funding to small businesses when it feels the market is not doing its job.
The British Business Bank does not lend directly to small businesses. Instead, it funnels public money to over 80 partners including banks, peer lending platforms and venture capital funds, so they can do the lending and investing. Check out finance options for your stage of growth through their website, which links to British Business Bank-backed funds.
The definition of a CDFI is an institution that "lends money to businesses, social enterprises and individuals who struggle to get finance from high street banks and loan companies. They help deprived communities by offering loans and support at an affordable rate to people who cannot access credit elsewhere."
CDFIs are independent, often locally-based organisations operating in all regions of the UK. They provide finance for a range of purposes including working capital, bridging loans, property and equipment purchases, and start-up capital. Find a CDFI in your area through the Responsible Finance website.
Corporations are increasingly opening accelerators and launching funds to back small business. As the name implies, accelerators offer an accelerated process for start-ups to help get products to market. Some offer financial backing as well as access to a global customer base.
Collider is one such accelerator and outlines its reason for being: "Collider is an accelerator dedicated to marketing and advertising start-ups. We invest capital in these start-ups, we coach them through a highly structured programme and we connect them to potential corporate customers and investors. The aim of the game is to help these start-ups become sustainable, rapidly growing businesses."
Other well-known accelerators include Telefonica's WAYRA, The Bakery, Cisco's IDEALondon and L Marks Portfolio.
Many accelerators focus on a particular sector, so it's important to research what’s right for you to be in with a chance of securing investment or custom from a global brand.
Credit cards have been the funding foundation for many bootstrapped young businesses. But only opt for one if you're confident of paying off the balance within the interest-free period.
Visit comparison sites to access the best deals from the main providers.
Crowdfunding has had a significant and positive impact on a small business owner's ability to raise money. Over £69m was raised through equity crowdfunding alone in 2017, according to Beauhurst. This figure looks set to keep rising.
There are three main types of crowdfunding:
Reward: People fund your business in exchange for rewards
Equity: The crowd invests in your business in exchange for equity, i.e. a percentage of the business
Loan: You raise a loan and repay with interest
In raising funds from the crowd, not only do you secure the capital you need but you also attract attention and an audience of potential customers.
The main crowdfunding platforms are:
It's been broadcast since January 2005 and the show retains its popularity as entrepreneurs go on to pitch for money, contacts and a little love from the Dragons.
Not only do you get the money, but you also benefit from a whole heap of profile.
Raising funds from friends and family continues to be the most popular source of funding.
Friends and family are people you can trust and asking them for money hopefully won't come with strings attached.
Consider having a written agreement that covers the amount borrowed and a payback schedule.
Foundations such as The Young Foundation and Esmee Fairbairn Foundation offer funds to businesses, social entrepreneurs and charities.
The Esmee Fairbairn Foundation offers funding across four main sectors; arts, children and young people, environment and social change as well as through a food funding strand. It aims to “unlock and enable potential, back the unorthodox and unfashionable, build collective networks and catalyse system change”.
The Ventures arm of The Young Foundation provides support and finance to entrepreneurs running social ventures.
Connect with contacts in your industry and local business networks to identify foundations to suit your venture.
Look for grants available in your region or industry via the government's Business finance and support finder.
Funding Central also lists available grants and is free to use for organisations with a turnover of less than £100,000 per annum, with charges thereafter.
Approach your local Enterprise Agency as they may be the administrator of local grant schemes. Find your agency by visiting the National Enterprise Network website.
Depending on your sector, there could be funds available for specific purposes and projects.
The British Fashion Council's NEWGEN programme supports young fashion designers with costs towards showing their collection. Creative England invests in creative SMEs with ground breaking technology. The Arts Council supports arts and culture with grants and funding. The BFI supports "the production, development and completion of feature films which fairly reflect people from different backgrounds" via its film fund. To name a few examples.
Find out the name of your industry body, sign up to their newsletters and watch out for funding opportunities!
Innovate UK is a government backed organisation to drive innovation from businesses of all sizes. This happens through various schemes and competitions
If you have secured an order and looking for immediate cashflow to fulfil it invoice factoring could be your solution.
Banks and factoring agencies buy invoices from you (for a fee) and provide up to 85% of the invoice value straightaway.
Local Enterprise Partnerships (LEPs) have been created by the government to play a key role in stimulating economic vitality across the English regions.
Many are launching funds that could be relevant to you. Identify the LEP for your area, visit their website, sign up for their communications and funding news could follow.
Nesta Impact Investments is a £17.6m fund investing in "life-changing innovations that help tackle the major challenges faced by older people, children and communities in the UK".
The website outlines the type of businesses the fund invests in and showcases a portfolio of funded companies.
Contact the investment team or simply submit your funding plan online.
New Enterprise Allowance
The programme gives jobseekers financial support and mentoring to ease the move from unemployment to self-employment. The New Enterprise Allowance is open to anyone over the age of 18 claiming Jobseeker's Allowance, Employment and Support Allowance or Income Support.
If eligible, you can benefit from a business mentor to help you develop your business idea and start trading, a weekly allowance paid for up to 26 weeks (up to a total of £1,274) and application for a Start Up Loan.
The loan must be paid back but the allowance doesn't.
As with crowdfunding, this has become a popular route to raising funds and involves platforms matching businesses looking for loans with people ready to lend. MarketInvoice is a peer to peer lending platform, as are Funding Circle and Ratesetter.
Funding Circle is relevant if you are a limited company with over two years of accounts filed with Companies House and a minimum annual turnover of £100,000. You can borrow between £5,000 and £1m with an online application form that takes around 20 minutes to complete. You receive a decision from underwriters within 48 hours.
If successful, the loan is posted to a live loan marketplace where lenders make offers with specified interest rates. It usually takes a few days for a loan to get fully funded. It’s then up to you if you accept the offer.
Ratesetter offers loans of between £25,000 and £2m with funds available typically within two weeks.
Power to Change
Power to Change supports people to start and grow community businesses to revive local assets, protect the services people rely on and address local needs.
Not exactly a way of raising funds but research and development (R&D) tax relief is a route to securing a reduction in your corporate tax bill! The relief can only be claimed if you pay corporation tax.
To claim the relief, you must show that: "The project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty and not simply an advance in its own state of knowledge or capability.
"The project must relate to your company’s trade - either an existing one or one that you intend to start up based on the results of the R&D."
Costs that can be allocated include staff time and any outsourcing costs to partners working on the R&D. Visit the government website to ascertain if your company and expenditure is eligible to make a claim.
Seedcamp is a seed investment fund and mentoring program investing in around 20 companies per year.
The company's standard investment is £100,000 in return for a 7% stake. It will co-invest in seed rounds of up to £2m if you have a lead investor.
As well as the financial injection, start-ups benefit from other benefits such as office space and access to mentors.
Start Up Loans
The government-backed programme, which has now lent to over 40,000 start-ups, offers funding of £500 to £25,000. The loan is a personal loan with a fixed interest rate of 6% per annum.
Visit the website and you’ll be directed to a loan delivery partner who will assess your business plan and, if the business plan is agreed and application successful, you will be awarded a loan.
Focused on unemployed people aged 18-30, The Prince’s Trust offers support and cash grants to develop ideas into viable businesses.
Young people also benefit from being matched with proven mentors.
Since 1983, The Princes Trust has helped over 80,000 young people to start their own business.
UK Export Finance is available for businesses looking to go global and enter international markets.
The financing terms on offer from the government aim to help exporters make their offering more competitive and can help with working capital to secure and deliver on international contracts.
The first step is to contact an Export Finance Manager for a free consultation to establish if your business is eligible.
Funding may be on offer through enterprise centres and societies at universities.
Visit the NACUE website for links to over 250 enterprise societies and research the centre or society in your area to explore the opportunities that are available.
Details of funding and business partnerships will also appear on most major university and college websites in the business and enterprise section.
UnLtd is a charity offering financial awards and ongoing practical and networking support to social entrepreneurs. It is the largest organisation of its kind in the UK.
UnLtd offers funding for entrepreneurs at different stages of the funding cycle; from idea through to capital growth.
The charity states: "UnLtd operates a unique model by investing directly in individuals and offering a complete package of resources; from awards of funding to ongoing advice, networking and practical support."
The British Venture Capital Association (BVCA) describes venture capital funding as: "A form of equity finance. Venture capitalists (VCs) invest their money in early-stage, innovative and often high-risk businesses. In return, they gain a share of equity.
"Businesses typically seek venture capital because they have a limited timeframe in which they need to scale to meet an opportunity. By foregoing a share of equity, they can obtain both the financial and strategic means to enable accelerated and sustainable growth."
This makes the point that venture capital funding is normally only appropriate for companies that are high risk and expect fast growth. If that’s you, you’ll want to acquaint yourself with the terms used and funding stages followed.
You can find information on that on the BVCA website. Venture capital firms include Balderton, Octopus, Hoxton Ventures, Passion Capital and Index Ventures. Many have sector specific funding themes, so make sure you approach the firms that are most relevant to your business.