How To Find Funding For Your New Business

In the next of UK2’s Setting Up A Business series, we look at the various ways of getting funding for your business…

People often forget that even global organisations started off as fledgling enterprises with little turnover and no guarantee of their subsequent success. Richard Branson began his career producing a student magazine in the crypt of a local church, while Morrisons was nothing more than a market stall in Bradford. These companies grew from surprisingly humble beginnings, with very little in the way of reserves.

As today’s entrepreneurs dream of becoming tomorrow’s Dragons, the issue of financing remains a perennial problem. Finding the money to establish a company is even more important than having a brilliant idea in the first place – many promising concepts never took off purely because the cash wasn’t available. Despite the UK having the fastest-growing economy in the developed world, banks are still understandably reticent about lending to startups. Happily, plenty of alternative funding methods are available. These include…

Government Schemes

The government runs a variety of schemes to help new businesses get off the ground. To help you find the one that’s best for you, they have created a finance finder tool.

UK2 is a business partner of Start Up Loans, a government backed scheme for funding and mentorship for new businesses. In under two years this incentive has lent more than £100 million to more than 20,000 startups. To find out more, visit the Start Up Loans website.

Crowdfunding

The perennial saviour of struggling musicians and vintage fashion stores, crowdfunding involves a large group of unconnected people each contributing a small sum of money towards a new enterprise. This is typically done online, with a fixed investment guaranteeing either a degree of future involvement or subsequent financial rewards ranging between discounts and dividends. Sites like Crowdcube, Kickstarter, Seedrs and UK2-championed crowd-funding platform BloomVC are hugely successful, and the latter has funded everything from honey-makers to ethical fashion designers.

Grants

These are discretionary and hugely over-subscribed, yet many successful firms received grants in their formative years. Much of this is publicly-funded across the UK’s various regions, although private-sector sources of investment are also available. Speak to Business Gateway and your local Regional Growth Fund in first instance, while j4b and GRANTfinder operate searchable databases of grant providers. Each grant application will be time-consuming and drawn-out, but successful requests effectively result in free cash.

Angel Investors

It’s often the case that self-made entrepreneurs want to provide a leg-up to the next generation, and angel investors are wealthy individuals willing to take a risk on a nascent enterprise. They often concentrate on their own area of expertise or local geographic region, but they will expect a return on their investment.

Peer-to-peer Lending

If the bank manager isn’t returning your calls, why not phone a friend? P2P lending is a fast-growing funding option whereby lenders receive a chunky return on their investments, and borrowers get rapid access to ready cash. The former require deep pockets and the latter will be thoroughly credit-checked, with FCA oversight but no State support in the event of problems. That said, the Government did recently invest £20 million into the Funding Circle business scheme.

Venture Capital Firms

Often known as vulture capitalists due to their propensity for swallowing up stricken companies, venture capitalism developed negative connotations during the banking crisis. VC firms can still be useful to empty-pocketed entrepreneurs, however. Typically boasting larger cash reserves than angel investors and a greater tolerance for risk than grant providers, venture capitalists generally come with enviable industry contacts and bags of funding experience. However, this may involve profit-sharing or even surrendering control of your fledgling enterprise to an uncompassionate financial organisation with both eyes on its share price. In that respect, they’re just like the high street banks.