5 types of business funding you should know about
99% of businesses in the UK are small or medium sized, accounting for 19% of turnover. With this in mind, we explore some of the finance options businesses use to access finance.
Alternative funding: What is right for my business?
Owning and running a business has tremendous opportunities around being your own boss, building a team, and growing a product or service. That said, financing the business and ensuring it’s in a good place to grow is crucial, and managing cashflow is something 40% of small businesses struggle with (according to WePay).
Gone are the days when the only option for accessing finance is to go into a bank and apply for a loan. This is very time consuming, and not the only way to get business finance. Whether it’s through choice or not, many entrepreneurs are now looking at alternative funding. But what is right for your business?
In recent years, a number of new enterprises have enjoyed success through crowdfunding. You might not be able to raise large sums of money, but if you have a niche product or service and a specific target market in mind, crowdfunding is definitely worth a shot.
But, while several businesses manage to gain traction on platforms such as Kickstarter and Indiegogo, it isn’t an easy endeavour. If this is your funding avenue of choice, be prepared to put in the hard yards. Also, double check your platform’s terms and conditions to ensure it aligns with your objectives.
In return for a cash injection into a business, venture capitalists (or equity investors) can take an equity stake of a business to help it grow, build a product, or market it.
Seeking out the financial assistance of a private investor isn’t for the faint hearted. Most of the time, private investors will only back businesses where substantial revenue and returns are foreseeable.
Biggest deals of the last quarter, Source: Beahurst
Therefore, if you’re a small start-up with modest aspirations, you probably shouldn’t waste your time with a private investor. However, if you can provide evidence of a scalable business model and don’t mind surrendering equity, it’s a lucrative option.
Find out more about equity finance here, in the TFG Equity Investment guide.
It is in the government’s best interests to support and encourage new businesses. After all, over 99 per cent of the 5.5 million businesses in the UK are small or medium sized, while micro-businesses account for 32 per cent of employment and 19 per cent of turnover.
Even so, government grants aren’t available to all businesses. A lot will depend on your location and industry, as certain areas of the economy are deemed as being more in need a boost than others. To find out whether your business could benefit from support, visit this list of available grants from the Department for Business, Energy & Industrial Strategy.
Friends and family
Calling upon friends and family for help will be first port of call for some people, but the last for others. This is because certain business owners are too proud to ask for money from the people they want to impress the most.
But there should be no shame in approaching friends and family for alternative funding. Just make sure you agree upon the terms of the loan or investment early on to avoid issues further down the line.
Other – Financial trading
Despite the element of risk that comes with financial trading, there are certain products that allow for big gains with small deposits. For example, CFD or Contracts for Difference (CFD explained here) is a way of speculating on financial markets without buying and selling the underlying asset.
Another advantage for choosing CFD over other trading alternatives is that you can get exposure to a much larger position than with a standard trade. Get it right – and you do have to have done your homework – and profits will skyrocket, providing any size of business with much-needed capital.