GETTING A NEW BUSINESS OFF THE GROUND IS A CHALLENGE, NOT LEAST BECAUSE YOUR VISION OFTEN FAR EXCEEDS YOUR AVAILABLE FUNDS.
Shalini is the Founder of E2E, an organisation that supports entrepreneurs, investment and mentoring. E2E has also launched the E2E 100 tracks to celebrate the leading 100 companies in six areas of industry.
GETTING A BRAND NEW BUSINESS FUNDED BY INVESTORS IS A BIG ASK.
Most investors want to see some evidence of performance before putting their money into an enterprise, but that doesn’t mean that funding isn’t available.
Financial support is one of the biggest hurdles our members face – which is why we’ve worked hard to find the right funding solutions for them, connecting them with the lines of credit that are best for their business and circumstances.
From many years of experience, we’ve researched, reviewed and had experience with many different alternative ways to access finance for startups. These are the main options for new startups.
STARTUP LOANS
The Startup Loans scheme is a state-backed initiative offering favourable rates to businesses less than two years old. That means that you don’t have to be pre-launch to access this funding. It’s a limited amount of up to £25,000, but the terms are good at just 6% fixed interest and a repayment period of up to 5 years. In addition, you can get 12 months of mentoring free of charge as well as some other useful benefits.
ADVANCE FUNDING
This is a broad term that covers any advance made by an individual or organisation against a future commitment. It doesn’t only apply to business funding and covers a wide variety of loans, including contractual payments such as royalties.
With so many different types of advance funding, the terms and conditions associated with these financial arrangements are infinitely variable. The qualifying requirements, interest rates and fees, and obligations of the person or entity receiving the advance funding can vary widely depending on the situation.
PEER-TO-PEER LENDING
With the right network this kind of funding can be a great way to access the finance to get your business off the starting blocks. The most commonly known version of this is crowd-funding and there are many different types of crowd-funding platform, including Kickstarter, Seedr and Patreon – which all offer different types of funding. Before you embark on any of these options, do check out the tax implications. However, the more sophisticated versions such as StreetShares are geared specifically to small businesses.
CONVERTIBLE LOANS
If you intend to grow your company to a point where you will issue shares a convertible loan will give you funds at the front end, which can be converted into shares at an agreed point in the future. That point may be triggered by a specific turnover, profit level or date.
UNSECURED BUSINESS LOANS
This is exactly what it says, it’s a loan provided without any security. There are companies that offer this kind of loan, but you’ll pay a higher interest rate. It’s worth looking at a few alternatives and comparing the rates and conditions before deciding on the right choice for you. The pro is that you don’t have to have collateral assets to offer to secure this kind of loan. If you resource this kind of loan from your bank you may have to provide a director’s guarantee that ensures that the bank has someone to chase if your company defaults on the loan.
SHORT-TERM BUSINESS LOANS
If you’re looking for finance for a short-term project or to trigger a growth plan that you’re confident will cover the investment in a relatively short time span, a short-term loan may be the answer. However, you will need to have a robust plan to ensure you’re able to pay the loan back on time.
BUSINESS LINE OF CREDIT
This consists of an arrangement, mostly with a bank, to provide ongoing access to funds to iron out things like bumps in your cash flow. It works like a credit card in that you only pay interest on the amount of funds you have borrowed at any point in time.
You can get both secured and unsecured options and once the facility is set up it is available to the agreed limit, whether you repay some or all of it at any point, until the arranged end date.
VENTURE DEBT
Generally, this isn’t a long-term solution, but can be invaluable as funding for startup companies in the early stages, while they get equity funding in place. Mostly this kind of funding covers a period of 18 -36 months and venture debt providers usually expect to get their money back when your next round of funding is agreed. It’s a way to get to the next level, but it’s a temporary method of funding, not a long-term solution.
My advice is to explore your options in depth before making a decision – funding is not something to be done in a hurry. Ideally, get some expert advice from someone who understands funding thoroughly, so you don’t make uninformed decisions. Your business deserves to shine brightly, make the right financial decisions and your path to success will be much easier to travel.
