Getting small business funding is not limited to just bank loans. For some businesses, equity investment may be most suitable. While for others, crowdfunding is more suitable. For less risky types of businesses, debt finance may be apter. If you are struggling to obtain a loan to start a new business, you can consider applying for start up loans. Finding finance is one of the most important tasks faced by any small business owner. It can seem like a lengthy prospect, but all small businesses need to raise cash somehow. Some businesses might need more startup capital than others. Some will secure it more effortlessly. In this article, we will enlighten you with the best ways to finance your business in the UK and new business grants.
Who offers business finance?
Any of the following could offer business finance, depending on the type of source you choose and how much you need to borrow for your business:
- Individual investors
- High street banks
- Hedge fund managers
- Members of the public
- The government
Types of Business Finance-
- Business Lending– In this type of funding, you can borrow a cash lump sum and keep the ownership of your business. Although, you might have to pay interest.
- Business Credit Cards– These can be issued to multiple staff. Interest charges are paid annually.
- Crowdfunding– It is also known as donation or reward crowdfunding. However, you might have to offer incentives.
- Business Overdrafts– This offers flexible borrowing and repayments. You do have to pay interest and fees, and the sum tends to be smaller.
- Government Grants– This is available only for small businesses. They are good if you need injection cash to push start your business.
- Angel Investors– They invests in both new and established businesses. However, you lose equity in your business.
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Small Business Grants
Till date, small business grants remain one of the best sources of funding. Developing and establishment of small businesses can be very challenging. This is imitated to support deprived areas, to stimulate technological advancement through research and development and to make the economy more competitive in a specific area. Whether private or public, these grant schemes generally seek to empower small and medium businesses to grow the economy and create jobs. Grant funding typically ranges in size from £500 to £500,000. The criteria for each grant scheme differs greatly but typically the more substantial the grant funding award, the more complex the conditions and the process of applying. We have listed below various grants that may suit your business needs.
Different Types of Grant Schemes
1. Direct grants
It is the most well-known form of grant finance. It is a cash award usually given to a business so it can carry out a specific project. Most direct grant schemes will need you to match the grant amount in money you raise by yourself. So, you’ll usually put up 50% of the cost of the project. There will also be regulations involved and agreements set in terms of how you can spend the grant money.
2. Tax Relief
Taxes are just not avoidable and the cost of paying taxes can be a harsh reality to start-ups. So, the government runs different schemes which aim to reduce them; for example:
- Business rates relief- You’re eligible if your business acquires one property, and the rateable value of that property is less than £15,000.
- Employment Allowance- This enables you to diminish the national insurance contributions you pay for your staff by up to £3,000 per year.
- Corporation Tax relief-You are eligible if you’re investing in research and development.
3. Soft Loans
A soft loan is a special type of finance where the terms and conditions of repayment are more generous than they would be under regular financial circumstances. For instance, the interest rate may be less and the repayment terms could also be for a longer period. It is often government-backed and, as a grant, can offer support in other aspects of running your business.
4. Resource and training grants
It has seen at times that start-ups find themselves unable to afford the resources, expertise, skill sets or facilities they need for developing particular projects. Fortunately, initiatives including incubator and accelerator schemes are available across the country. These provide access to experts and publicly- owned facilities. Some of these include:
- Innovation vouchers which offer up to £5,000 pay for you to enlist the help of an external expert. It is ideal if you need help in a particular field, be it product design, intellectual property management, tech innovation or something else.
- Local advice and support help a lot in this. Local councils across the UK run their business support grants which provide ongoing support in the form of workshops, accelerators, expert advisory services and training for free.
- Business support networks and best practice initiatives are other options. Technological advances and new best practice initiatives can often take a long time to filter down to smaller businesses. The government has set up a series of expert networks and initiatives to share knowledge sooner and better.
5. Business grants for women
With male oriented businesses more likely to attract funding, organisations are progressively looking to fund women in business and give them a more even opportunity to flourish. For female entrepreneurs who are constructing start-ups, access to funding remains a difficult barrier to growth. You will be glad to know that there are many organisations working towards getting rid of this bias by offering grants, including cash awards, mentoring and business support packages
Apart from the above-mentioned grants, there are many other grant schemes available for new entrepreneurs, like Business start-up grants for over 30s, social entrepreneurs, unemployed entrepreneurs, and bad credit. You can conduct in-detail research and learn more about them.
What are the other ways to funding for a new business?
Apart from bank loans and grants, here are other different ways you can raise money to finance your business in the UK:
People come together on crowdfunding sites to pool money towards a particular business idea. Donors or investors on crowdfunding sites are typically private individuals providing small sums. Crowdfunding is chosen by many new entrepreneurs and has seen positive results.
2. Family Loans
If you want to keep things super simple, go for family loans. Relatives, friends and family are more likely to trust you with their money than any big investor. And, they may possibly demand a lower interest rate for it. However, most people resist going for this option when it comes to mixing family and finance.
3. Bank overdraft
For companies with inconsistent income, a bank overdraft can provide quick and flexible cash flow. Most banks charge interest only on the amount you overdraw, and many offer custom-made packages for young businesses.
4. Community scheme
Community Development Finance Institutions (CDFIs) have been set up around the country to help individuals and businesses who find it difficult to access funding. CDFIs provide help with everything from bridging loans to funds for property and equipment purchases.
5. Business cash advance
With the business cash advance, you can secure up to £300,000, without the burden of collateral or fixed monthly repayments. But you may have to meet a difficult set of conditions.
Summing up, getting finance for new business in the UK is not just about loans. You can easily look for the above-mentioned option (especially grants) and then choose accordingly. It is highly advisable to conduct prior research before getting on the final grounds.