12 Ways to Access Finance for your Business
Picture it: you’ve got an amazing idea in your head of a great service you can provide, or an innovative new product that meets the gap in the market. You’ve got sales and leadership skills – in fact, you may have even owned a business before – and you know your target audience like the back of your hand. You’re ready to take a deep dive into launching your business: but now what?
The fact is that you cannot easily begin a new business without any funding or money behind you. Even if you have savings to fall back on to create the products you’d like to sell, there’s still much more to think about such as production costs, marketing fees and even rent for a shop.
But this doesn’t just apply to new businesses. Even companies that have been established for years may need a helping hand in terms of finance, perhaps due to struggles from the fall out of Covid-19 or a potential ongoing recession.
So, how can you access finance for your business? Let’s take a look…
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Analyse your Finances
Before taking any further steps, first, you should analyse your current finances. Whatever stage of your business you’re at, you may already be dealing with incomings and outgoings. You may also have life savings or investments elsewhere.
Once you have everything in front of you, you can then take a look at any changes you can make yourself. For example – are you paying out for an email service you no longer use – and can this be paused in the meantime? Or perhaps you’ve been with the same web hosting service for years now and it might be cheaper to shop around or see if they offer any discount to loyal customers.
Until you have a clear and comprehensive overview of your current finances you’re unlikely to know how much money you need.
Apply for a Government-Backed Start Up Loan
New and start-up businesses are eligible for anything between £500 to £25,000 to start or grow a business, thanks to this government-backed Start Up Loan.
Unlike a business loan, this is an unsecured personal loan.
This loan also offers free support and guidance to help write your business plan and if you are successful, you can receive up to 12 months of free mentoring too.
However, this government-backed loan does charge a fixed interest rate of 6% per year, which can be repaid over a period of 1-5 years. There is no application fee and no early repayment fee.
Research COVID-19 Financial Support
If you’ve been running – or launched – a business between 2019 and now, you may be eligible for financial support.
The government currently offers a full range of business support measures available to UK businesses, such as:
- Coronavirus Job Retention Scheme
- VAT deferred due to coronavirus (COVID-19)
- If you cannot pay your tax bill on time
- Business rates relief
- Recovery Loan Scheme
You can find further information on all of the above support schemes at www.gov.uk. Additionally: your business size does not matter. For example, the Recovery Loan Scheme offers support for businesses of any size to help them grow and recover from the disruption of the COVID-19 pandemic.
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Register for a (Start-Up) Business Account
By choosing a business account you can receive many benefits and support – and many banks provide accounts specifically for start-up businesses.
The main difference between a business bank account and a standard personal account is that account features will be designed with business use – such as payroll and invoicing – in mind. However, many – but not all – have fees attached.
Most business accounts offer benefits such as:
- Free invoicing and accounting software
- A business manager to help support you
- Cashback
- Interest
And if you’ve already got a business account? Analyse the terms and check that it still works for your company’s needs. If not, many UK banks offer small reward fees for changing accounts!
Consider Asking Family and Friends
If you’re a start-up business or a relatively small company, consider asking family and friends for some financial support. Many loved ones are happy to offer support. This is a great option for a business that just needs that initial support to get off the ground and until they secure funding elsewhere.
Although it can be quite daunting asking friends and family for money, think about the ways this can benefit them in the long run. You could pay them interest for sales or offer them a small stake in the business – so essentially they are investing in the business in the belief that it will succeed.
Apply for a Bank Loan
Bank loans and overdrafts have always been a popular choice for funding businesses and it’s easy to see why. It’s a simple and effective way to support the growth of your business and, if you already have a business account with your bank/loan provider of choice, the process will be even more streamlined.
A bank loan works well for more established businesses and smaller businesses too as you can receive larger amounts of support than you would get from a friend investing in your small start-up for example.
However, loans come with their own fees and essentially that money will need to be paid back. You should also ensure you do a lot of research into what type of loan is best for your business – and make sure you have a good credit score too!
Find Investors: Angel Investors
Angel investors are best suited to smaller or start-up businesses, bringing experience and resources to a business as well as a high net worth. In many cases, if an angel investor comes on board, they are likely to contribute such a large amount that no other investors are needed.
On the other hand, angel investors expect a high return on their investment and ensure the business is just right for them. Angel investors usually like to have a lot of involvement in the company and like to come on board from the very beginning of a businesses’ launch.
Unlike other investors, angel investors bring more than just money to the company – so if you can find one whose values align with your own, this is definitely a route worth considering.
Find Investors: Venture Capitalists
There are various types of investors you can approach for your business and for this point we’re going to talk about investors who will typically receive shares in your company in return for investing.
One option is venture capitalists – who often come into more established businesses to offer a higher investment. They do not use their own money and instead use that of investors, where they set up a fund that is used for others to buy shares in the company).
Although venture capitalists can bring more investment to a company than other sources, it does mean that they will own shares in the company and have a say in how it is run.
Explore Crowdfunding
If your business offers – or plans to offer – an innovative product that will really benefit the public or an exciting new video game, you may want to explore the option of crowdfunding.
Crowdfunding refers to funding a project or venture by raising money from a large number of people – typically via the internet. Many businesses launch a crowdfunding page and offer various rewards based on donation amounts – for example, a £5 donation may include a free sticker, whereas larger amounts like £500 may result in exclusive early access to a product or a ‘thank you’ in a game’s credits.
Crowdfunding is an excellent option if you have the time and resources to market your idea online.
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Consider Peer-to-Peer Lending
Peer-to-peer lending is similar to getting a normal loan, but the primary difference is where the finance comes from.
Rather than coming from a bank or the government, peer-to-peer money comes from everyday individuals. People invest their own money in a peer-to-peer lending scheme, where the lender then allocates this finance to loan recipients.
Peer-to-peer lending offers better financial returns for those investing, but for businesses, there’s not much difference between this and a standard loan.
Consider Selling Shares for a Profit
Selling and buying shares can be considered risky – particularly for beginners – but when done correctly, it can be an excellent way to help finance your business. Selling shares means to sell ownership – or part ownership – of a company and is a dividedu-p unit of the value of a company.
For example, a company worth £100 million may offer 50 million shares at £2 each – but of course, this value can go up and down as time goes on.
When selling shares, you can choose to sell either a number (i.e 500 or all shares), or a value (£500 worth of shares). You can do this through a broker.
The above ways to access finance for your business all depend on a number of different factors from how new or established your business is or how much control you’d be willing to give up in return for investment.
We’d advise taking time to analyse all your current incomings and outgoings and having a rough idea in mind of how much you need. Then, take your time to research all the different options available before making the right choice.
