How much could your business save?Find out now!
Or, you can call us on:0800 411 8830

Understanding funding options for small businesses


Sources of finance for UK SME businesses include banks, crowdfunding, equity finance and government funding. How do you choose the right one?

After several years of limited access to finance, the funding situation is gradually improving. “The current climate is more positive in the business lending sector with the growth of the challenger banks and less traditional funders such as crowdfunding services providing both competition for the major banks and real choice for businesses,” says Lee Tillcock, editor at financial analysis business Moneyfacts.

But numerous options will need to be explored before the right funding lines are found, says Tillcock. “Businesses should discuss their requirements with commercial finance brokers and/or their accountants to ensure that all lending possibilities are being considered.”

Banks

Banks are the most obvious place to start, although they can still be reluctant to lend to smaller firms.

“There are various ways banks will lend, such as invoice discounting or lending against your assets,” says Rob Donaldson, head of corporate finance at accountant Baker Tilly. “These ways are perceived as safer than something like cashflow lending, which is the equivalent of an unsecured personal loan.”

The rate of interest can vary significantly depending on what level of risk you are assessed as having and how much you want to borrow.

Crowdfunding

Online lending and investment platforms are becoming a more acceptable way of helping businesses obtain debt and equity funding using money from individuals. These peer-to-peer (P2P) networks include the likes of FundingCircle.com and often prove less risk averse than the banks.

On equity crowdfunding platforms, you publish details of your business, how much money you need and why, and what investors will get in return.

P2P lending, on the other hand, involves your company being given a risk rating, which dictates the interest rate you pay. A pool of private lenders will then provide your firm’s finance – the riskier you are, the higher their returns will be.

Recent figures from FundingCircle.com show the platform lent £46 million to small firms in the third quarter of last year. In comparison, Lloyds Banking Group – the UK’s biggest lender to small and medium-sized enterprises (SMEs) – lent £304 million over the same period.

Equity finance

Other equity options include venture capitalists and private equity firms, which can inject money into your company in return for some form of a share of ownership in your business. “This means the investor gets a share in the upside for your business,” says Donaldson. “But giving up equity doesn’t always mean giving up control.”

Contact the British Private Equity and Venture Capital Association (BVCA) for more information.

Government funding

A number of Government-backed programmes aimed at funding growing businesses are available but these vary by sector and region. The Business Growth Fund, for example, aims to channel bank money to growing firms and will give you some ideas of what opportunities are available.

Related Articles

energy news 21/01/2017

Energy News – 21/01/2017

The week of Donald Trump’s inauguration has seen shaky energy markets, a landmark Brexit speech by Theresa M...

Read More
how business leaders avoid burnout

How business leaders avoid burnout

When you’re a small business owner the buck stops with you, which can make it incredibly difficult to sw...

Read More
how to make 2017 your best year ever

How to make 2017 your best year yet

Whether you heaved a sigh of relief when 2016 ended, or said goodbye to the year with sadness, we have some ti...

Read More
Excellent, 9.6 / 10

Thanks Mark...

"Mark was very helpful and had all the answers to the questions I had - would go back to him time and time. Thanks Sir"

This review was posted by Wayne Nugent - Mailing Guy on the 20th of January 2017

Switch Business Electricity Contract

"Very good & efficient service - good range of prices offered from variety of suppliers"

This review was posted by SALLY DOLMAN on the 20th of January 2017

Cheerful, helpful service.

"Aaron Gallagher was my contact at SwitchMyBusiness.com. Aaron was cheerful and helpful he made switching our electricity supply easy and painless giving an understandable explanation each step of the way. I would quite happily recommend this company and Aaron Gallagher to anyone given the task of arranging a new energy contract."

This review was posted by Pam Johnson on the 19th of January 2017

Kyle Wright - Excellent Service

"Dealt with the above on two occasions now and has made the process of switching energy suppliers very easy. Very Polite and helpful person, will defiantly want to deal with again."

This review was posted by Skyline32 on the 19th of January 2017

Made this a very simple transaction!

"Aaron was polite, friendly and extremely helpful, making this potential chore a very easy transaction. He explained everything thoroughly and answered all my questions and I feel very confident that the whole transition will go very smoothly and I am aware of what to expect as the process moves forward. Thanks Aaron!"

This review was posted by Lesley Clayton on the 18th of January 2017