You may have used your own savings when starting your own business, many people do. Friends or family might have lent you money. You may have been fortunate enough to secure a start-up grant or loan, or your bank might have provided a solution to some of your start-up funding needs.

Now that your business is more established, it might have its own cash reserves, but investing them all in growing your business could leave you dangerously short of working capital (and you might need more anyway). So, what are your likely funding options if you want to grow your business?

 

1.) Bank loan

Although fewer small businesses are applying for bank loans, approval rates remain high. According to UK Finance (the body that now represents banks in the UK), in Q2 2017, 81 per cent of small-business loan applications were approved, so getting a bank loan might not be as difficult as you imagine.

Speak to your current business bank to find out what funding solutions they can provide. Ask what security is required and carefully consider whether you can afford the monthly repayments (seek advice from your accountant).

Recent years have seen many “challenger banks” emerge as rivals the high-street heavyweights, so explore all options. And if you’re turned down for a loan because you can’t offer security, the Enterprise Finance Guarantee scheme might offer your business a solution.
 

2.) Government grants and loans

It’s not just start-ups that can apply for government grants and loans. New businesses (up to two years old) can apply to borrow between £500 and £25,000 for a lower, fixed interest rate from the government-backed Start Up Loans Company. Visit government website Gov.uk to find out what government finance and support is available in your region or sector.
 

3.) Business angels

You’ve seen Dragons’ Den? Of course you have. Well, basically, the Dragons are business angels, that is, highly successful business people and entrepreneurs who invest (typically £20,000-£200,000) in early-life small business in return for equity (ie a share). They usually sit on the company’s board and help decide how the business is developed.

According to The British Business Angels Association (BBAA), angels invest some £1.5bn a year, making them “the UK’s largest source of investment for start-ups and early-stage businesses seeking to grow”. The BBAA’s website features a wealth of information if you want to find out more about angel investment. Angels usually have lots of experience, knowledge, contacts and money, but it will involve giving up some control and ownership of your business.

 

4.) Crowdfunding 

A relatively new option, crowdfunding can offer a way to raise finance by asking a large number of people to each pay a small amount to help a business to launch or grow. Founded in 2010, Funding Circle was the first online platform to provide peer-to-peer lending to small UK businesses and it has since facilitated more than £2.2bn in loans to SMEs. There are other options.

“Debt crowdfunding” (also called “peer-to-peer” business lending) is where investors get their money back plus interest, while “equity crowdfunding” is where people invest in exchange for shares or a small stake in the business or project. Visit the UK Crowdfunding Association website for more information.

 

5.) Venture capital and private equity

As explained on the BVCA website, “venture capital” refers to funds invested in companies “in the seed (concept), start-up (within three years of establishment) and early stages of development”.

Private equity is “finance provided in return for an equity stake in potentially high-growth [unquoted] companies” and is often used to fund management buy-ins or buy-outs. The business management team’s credibility, competence, ambition and growth strategy can all help to determine whether investment takes place. If it does, some ownership and control must be conceded to the private equity firm. For more information, the BVCA website features a guide to private equity and venture capital FAQs.

 

Proper planning…

In many cases, you’ll need a mix of funding sources if you want to grow your business. Obviously, you should work out how much you need and how you’ll spend it. Investors will expect a clear idea of when they’ll get a return, while lenders will want to be sure your numbers add up. In all cases, you’re more likely to succeed if you come armed with a sound business plan.

 

 Read our guide to find out how to create a business plan for growth HERE

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