You might decide to explore funding opportunities at any stage of your business either for initial start-up requirements, to fund growth or because you are in need of day-to-day finance for your business. In this guide, we look at several different types of funding possibilities including some recently launched loan schemes to help companies survive the Coronavirus pandemic.
One of the most common ways in which to finance a new business is to obtain a business loan.A good first point of call is the British Business Bank website which outlines all the current government-backed small business loans available to UK companies.
The Start Up Loans scheme is designed for new businesses that have either not yet started or been running for less than 24 months. This initiative connects entrepreneurs with government business loans and financial mentorship. In order to apply for these government loans, you must be 18 years of age and a resident of the United Kingdom. When you apply for the loan you will have your credit rating assessed, You will be assigned a delivery partner, who will help you develop a comprehensive business plan. This will be assessed, and the Start-Up Loans Company will decide whether or not to issue a loan. Should your application be approved, you will then receive a low-cost unsecured loan of up to £25,000 at a fixed rate of interest (6%), which you must pay back in full within five years.
This loan is a good scheme running for any business that is struggling to raise finances due to insufficient trading history. Although, the applicant is personally responsible for the loan and has to demonstrate that they can afford to pay it back.
The BBLS is an excellent loan scheme for businesses that have been trading prior to March 2020, it was launched in May 2020 and will run for 6 months. Loans range from £2,000 up to 25% of a business’ turnover. The maximum loan amount is £50,000. The real sweetener is that there is 0% interest on loans for the first 12 months and the loan is 100% guaranteed by the government. Meaning you will not have to provide your own personal assets as collateral.
It is relatively easy to apply for a bounce-back loan and it is available for a large number of traditional and challenger banks. Check with your current business bank if they are part of the scheme otherwise the British Business Bank website lists those that are taking part.
The coronavirus business interruption loan schemes (CBILS) are suited to a slightly larger business than the BBLS. They are designed to help businesses that have had their revenue and cash flow affected by COVID-19. The scheme provides the lender with a government-backed, partial (80%) guarantee against the outstanding balance of the finance. For loans up to £250,000, no personal guarantees are required. The first 12 months are interest fee as the Government will cover the first 12 months of interest payments and any lender-levied charges.
Although not as commonly obtained as traditional loans, government grants are also available, providing further government funding for small businesses.While there is start up funding available, the process of applying for a government grant can be a long one.
There is a great deal of money put into publicly-funded schemes each year, and yet this money is often left unclaimed. This is because the process of navigating different application criteria and crafting numerous different bids and proposals can seem like more hassle than it’s worth. However, it’s important to note that a portion of taxpayer money is each year allocated into government grants that are designed to help businesses of different sizes across various sectors. Therefore, that money is indeed available – it’s up to companies to find time to invest in applying for it. Successful applicants will receive a cash award, the amount of which can range from smaller sums of around £2,500 to large six-figure sums (although these are only likely to be awarded to “high-growth” businesses). In order to find a directory of government grants for small businesses, you can access their Business Finance Support Finder to learn about over 300 direct grant schemes.
One method of funding for small businesses is to obtain financial backing from an angel investor.
An angel investor is typically a wealthy individual, often an entrepreneur or business owner themselves, who will provide capital for a start-up business venture. Unlike creditors who will supply the capital in the form of a loan and expect repayment, an investor will provide it in exchange for part ownership of the business, or some other form of convertible debt. Anyone can be an angel investor provided they believe in your company; this means that technically, even friends and family members can provide you with the money you need. However, mixing professional and personal relationships can not only prove tricky, but loved ones may not have the business acumen to make an informed decision. If they do, their judgement could be clouded by their emotional attachment, and therefore finding an experienced and ideally impartial angel investor is a preferred method for many people.
In order to do this, you will need to network extensively, as finding someone with the means and desire to part with precious capital to fund your venture can be easier said than done! Joining angel investor networks is a great way to do this, and there are a number cloud-based networks available online to make it easier to connect with someone who may want to invest in your start-up.
A relatively new method of funding for small businesses, crowdfunding is becoming a popular way of obtaining the money you need for your start-up.
In this instance, members of the public can invest as much or as little as they like to get your initiative off the ground. Instead of relying on one large cash injection from a sole investor, you can fund your start-up using the cash obtained through several smaller donations. You will need to create a compelling campaign that grabs the attention of potential investors, and put this across one of the many online platforms that are available to support crowdfunding. If your target is reached, you will receive the money less applicable fees, and there may then have to be further steps taken with Companies House and the bank depending on your terms and conditions.
As an established formation company, we have full a list of resources that can be of assistance when it comes to finding funding for your new business venture.
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