A business in its earliest stages is a testing environment for an owner-manager.
You may well still be tweaking your offering based on customer and supplier feedback. And while you may have a dependable income from a small group of customers, you will in all likelihood have few if any staff and a seemingly unending to do list.
Nevertheless, you are up and running and looking for funds so that you can meet the demand you have now proved exists.
The biggest challenge in terms of securing funds is that in all probability you have yet to turn a profit. A bank overdraft is one possibility, but it may not big or flexible enough to cover your needs. It’s sensible to look ahead at this point and forecast your spending needs for at least the next year.
Business angels target businesses at this stage of their lifecycle, in exchange for an equity stake and a return on their investment at exit stage three to five years on.
Business angel networks – groups of sophisticated investors and high net worth individuals – commit funds individually or as a syndicate.
If you are seeking between £100,000 and one million pounds this might be the funding option for you. Bear in mind that investors pledge money in exchange for a share of ownership; you should weigh up your feelings on that score and expect to inject some formality into your operation. You will need to be able to present a business plan, forecasts, a current valuation, some kind of proof of concept such as a registered patent or a prior committed investor and you will need to be over 18.
Business angels often use an online auction system and you should expect to pay this kind of platform or a network a percentage out of the funds you raise and a legal fee. And remember that investors will want a percentage of the company’s equity in exchange for their involvement.
Go to www.ukbusinessangelsassociation.org.uk , a government-recommended site.
If you are an early-stage business in the science, tech or engineering space, you may be eligible for an Innovate UK Smart Grant. Grants are awarded specifically to assist with the development of a new product, process or service and eligible businesses can secure up to 60% towards the costs of a proposed project.
Businesses need to be SMEs or micro businesses and must be able to demonstrate potential for high growth.
Go to https://interact.innovateuk.org/ for more information on how to apply.
Community Development Finance Institutions
CDFIs are social enterprises that provide funding to businesses that can’t secure finance from other sources.
Member of the CDFA – foundations and not-for-profit bodies – vary in their remits, in terms of the business sectors they target and on the size of loans they will consider, but broadly aim to supply affordable funding to locally-based enterprises. Go tohttp://www.findingfinance.org.uk/ for more information.
For a round up of information on start up loans and equity crowdfunding go here.
This month we’re focusing on helping UK businesses get access to the wide variety of alternative forms of finance available. For most businesses the first port of call is their bank – but what if they turn you down or can’t give you the amount of funding that you need?
Don’t worry – our latest ebook outlines the funding options available to you at each stage of the business lifecycle and one things for sure, it certainly isn’t over just because ‘the bank says NO’.