Finance

Alternative Funding Options for Small Businesses

The British funding environment is undergoing a huge change at present; the traditional funding model of large banks lending and venture capitalists investing is stagnating (as has been made very clear in the press), and thus small business owners are having to look elsewhere for capital to nurture, stabilise and grow their enterprises.

As bleak as this sounds, it is not necessarily a bad thing. Because the ‘elsewhere’ I mentioned is absolutely full of exciting new funding concepts, designed to provide businesses willing to depart from the norm the spoils of capital investment. At Ingenious Britain, we’re trying to open small business owners’ eyes to new developments and concepts we feel can really kick-start the British economy – we call this the ‘New Business Normal’, but you can call it ‘a new start’.

Crowdfunding

Essentially, crowdfunding is the rise of the online armchair ‘Dragon’. Much like on the TV series Dragons’ Den, you ‘pitch’ your business for an equity stake in your company. The difference here though is anybody can be that Dragon. You can decide yourself if a business is investable, and put your own money (as little or as much as you’d like) into it for a share of that business, or a reward – which are normally stratified so that the more you invest, the better the reward.

Online investment is expected to reach £12billion in ten years’ time, and crowdfunding is the start of this revolution. It’s democratising investment, and the onslaught of technology has facilitated local communities (both digital and otherwise) to come together and back a certain project or business. If you have a wide follower base, and a watertight business plan (with projections), this is the opportunity for you to make the most of it!

Check out: Crowdcube, PeopleFund.it, BankToTheFuture

SEIS (Seed Enterprise Investment Scheme)

We love SEIS here at Ingenious Britain. It’s a scheme brought in by the Government last year, which hasn’t got nearly the exposure it deserves. It basically offers a lower liability risk for investors looking to pump money into businesses by ensuring additional return for them in the form of tax credits. More information on the specifics of the scheme is available on the HMRC website.

Lower chance of losing money for investors = higher chance of investment in your company. I normally hate maths, but that looks like a good equation to me.

Prince’s Trust

Younger entrepreneurs, this is for you. The Prince’s Trust have been helping out 16-25 year olds for over 20 years, and they’re great if you’re looking to take the first tentative steps in the business world.

You can get a grant of anything up to £500 to help you get into education, training or employment, and via their Enterprise Programme you can apply for a low-interest loan of up to £4000 if you’re a sole trader, and £5000 if you’re a partnership if you’re looking to start up a business.

Invoice Trading

Now, this is new, and I was delighted we featured it in the latest edition of Ingenious Britain, because I think it’s a great alternative to short-term loans (A.K.A. ‘Hello, 4000% APR’) for unlocking the value within your unpaid invoices and maintaining healthy cash-flow.

Invoice Trading is the process whereby small businesses (the sellers) place invoices in an online auction and sell them individually or in bundles to the best bidder (the buyer). This means they get quick access to outstanding funds. Sellers then buy invoices back after either 30, 60 or 90 days. It’s a fantastic concept, and one that definitely deserves looking into if you’ve a history of receiving late payments or need to bolster cash-flow.

Regional Growth Fund (RGF)

There are a host of government schemes, both local and national (most of which are available to look at here) which are designed to help up small and start-up businesses; I’ll focus on the RGF because I think it can be the most beneficial for small businesses.

The RGF is a £2.6 billion fund operating across England from 2011 to 2016, which supports projects and programmes that lever private sector investment to create economic growth and sustainable employment. The first three rounds allocated £2.4 billion, which will leverage over £13 billion of private sector investment and create or safeguard over 500,000 jobs.

It is about to enter its fourth phase and organisations across the UK have been encouraged to apply for their share of the £350 million fund before the deadline, which is fast approaching. So, if you fit the bill (and let’s face it, most businesses do fulfil that brief), then apply, apply, apply!

Also worth checking out: R&D Tax Credits, which aren’t just for men in white coats.

StartUp Loans UK

Finally, chaired by former-Dragon and entrepreneurial behemoth James Caan, I’d like to introduce you to StartUp Loans UK. As well as low-cost, unsecured loans, the scheme offers mentorship, which can be vital for businesses in their early stages.

The only downside is that there is an age limitation – the scheme only offers finance to those aged between 18-30 – but it’s a great scheme for younger entrepreneurs who need guidance as well as finance.

Where do you turn for additional capital? If you have any experience with the options mentioned above, please share them via comments below.


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James Day is the Social Media Manager at Ingenious Britain, the small business campaign dedicated to providing small businesses of all descriptions th...
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    Arrun
  • May 8th, 2013
Bank to the future is a great company check it out guys
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    Olive Mitchell
  • May 9th, 2013
Thank you for the useful list. I'm considering to use Prince's Trust for me to start up a small stall. Will they have any qualifications aside from the age limit that they require? Will they only approve individuals who do not reside with their family members?
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James, great piece, thanks for sharing your expertise. What do you make of crowdfunding site Funding Circle? They have now loaned more than £100m to UK SMEs. A portion of every loan is backed by the Government. Do you think sites like Funding Circle have the capacity to significantly disrupt the conventional lending market?
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Hi guys, thank you very much for your comments.

Olive - as far as I know, The Prince's Trust don't discriminate against people who live with their parents; and with regards to qualifications, I think age is the only boundary. It may be worth contacting them directly though if you're unsure.


Anthony - no problems, thank you very much! I'm a firm believer in new funding opportunities, including platforms like Funding Circle, and I think that yes, they have the power to disrupt and re-calibrate (in a good way) the conventional lending market. It's giving power to those people like yourself and I to make informed decisions and to back businesses they believe in. Technology is a wonderful thing, and it's opening up new ways for small businesses to be competitive, not just in terms of funding, but marketing, flexibility, and for research purposes as well.
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    Totally agree. Worth a read is Funding Circle's recent report which suggests that peer-to-peer lending has the capability of funding £12bn in loans. It's an awesome prospect, the banks must surely be quaking in their boots. But it's about time! Here's that link: https://www.fundingcircle.com/about-us/our-blog/nesta-and-funding-circle-report-reveals-peer-to-peer-lending-has-potential-to-deliver-12-billion-in-business-lending
      J
      I think we posted this on Ingenious Britain a couple of weeks ago - but those figures sure indicate that there's a change coming - banks are going to be, to quote Elvis, 'all shook up'.
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Oh, and also, an amendation - Start-Up Loans, as of the near future, will not have ANY age boundaries: http://www.james-caan.com/wp-content/uploads/2013/05/SUL-Annoucement-final-13.05.13.pdf
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    Mark Jones
  • January 6th, 2014
Thanks for this article, James.

As you will guess from the name funding is my business - in particular finding debt finance for smaller owner managed businesses.

Crowd Funding is indeed a valuable development in the market - being honest I don't think it will prove particularly disruptive to banks - it has many strengths and one particular weakness - which is the nature of the crowd - unpredictable and risk averse.

Beyond the crowd there is a wide and diverse 'non bank' lending sector which ranges from private individuals lending in their own right, to start-up equity backed companies to subsidiaries of known names offering niched products.

The biggest hole left by the banks is the availability of short-term 'dip in finance, traditionally covered by overdrafts. New and innovative products are appearing in this area - you have mentioned invoice trading, there are a number of providers here - it is also possible to bridge against business or personal assets. Also, of particular relevance to this forum, trade and stock finance are fast developing products.

There is a lot of money outside the banks - you just have to go looking..
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