How can small businesses raise capital?

5 Jan 2022

Small Businesses are the lifeblood of many high streets. Our towns and cities would be ghost towns without our much-loved newsagents, salons and barbers, grocers, cafes, restaurants, bars and pubs. And on industrial estates dotted around the country, many services and small manufacturing firms provide the backbone for the country’s business community to thrive. Raising capital if you’re such a business owner can represent a challenge, but there are a few different ways you can access the funding you need.

Sterling cash pile

Make sure you have up to date financial information

Whether you’ve been in business six months or six years, all lenders and grant providers will ask for up to date management accounts. So, before you consider applying for loans or grants, you need to invest some time to get your most basic accounting information up to date. 

This information doesn’t always have to be that detailed; a balance sheet and profit and loss statement/management accounts could be enough. We’ve compiled a helpful list of the documentation you might need.

This exercise will be beneficial in several ways. You’ll be able to recite the critical data to any prospective lender or grant supplier at the drop of a hat, making you appear confident and highly professional. You’ll also begin to establish where your business’s potential weaknesses and opportunities exist as you indirectly conduct a brief SWOT analysis (strengths, weaknesses, opportunities, threats).

Prepare or refresh your business plan

Your latest financial information will form part of your business plan; it outlines your vision and explains why you want and need the funds. Do you need an injection of working capital for expansion, as cash flow issues, or perhaps buy lease equipment? You also need to highlight your unique selling point in your plan; why you’re superior to your local competitors.

Whatever reason you’re applying for a loan, you need to build a case for the funds in your plan because you can be sure the lenders need to identify the need, how your forecasts justify the request and how you’ll meet your repayments from your future profits.

Apply for funding

Access the Recovery Loan Scheme 

The RSL (Recovery Loan Scheme) is a government initiative run by the British Business Bank. The facility is available to help all businesses that have been negatively affected by the Coronavirus.

For small businesses, this funding source could be ideal. If you're looking to borrow a sum below £250,000, there is no security needed, and if you own your home, it can’t be used as security, whatever the loan size.

You can use the RLS finance for “any legitimate business purposes”, such as supporting your cash flow, buying new equipment, or paying wages.

Borrowers must pay all interest and fees under the RLS from the start. Unlike earlier Covid related schemes, the Government won’t cover interest or offer any repayment holidays for the first 12 months.

To obtain commercial finance on such favourable terms as the RLS is an option any local business affected by the Coronavirus should seriously consider. The threshold of £250,000 before security is needed is a generous limit compared to historical lending. But it’s up to you to work out what you need and can realistically afford to pay back.

Consider crowdfunding and peer to peer lending 

Crowdfunding can be an excellent method to secure funding for your local business because many small investors look for local businesses they can invest in and support. 

There are various types of crowdfunding options for you to consider.

As the name suggests, a crowd of investors supports you to share the risk with crowdfunding. They could do this by buying a share in your business, this is termed equity crowdfunding, and we’ve established links with several sources who may be in a position to help once you’ve applied. 

We also help with peer to peer lending, also known as P2P; this is where you borrow money from a collection of lenders and pay back the loan with interest. The P2P crowdfunding sites that offer this facility act as gatekeepers who assess the risk for the individuals through the lending platform. So, in some ways, P2P is like an unsecured business loan

Local council grants and loans

Your local council can often supply financial support to a local business through various pockets of funding. These funds are announced and released once the total yearly expenditure and budget gets calculated.

Such council support tends to come in grants or affordable loans. Typically, such funding options are modest and below £10,000. But as grants, these can be highly prized cash injections. It’s best to contact your local council to establish what’s available to you as these opportunities tend to be time-limited. If you call your local council (you’ll find the number on your council tax bill), you’ll get directed to the correct department.

Another valuable online resource to discover what grants and awards might be accessible to your business is GrantFinder. They aim to simplify access to funding for businesses, local communities and charitable organisations. GrantFinder describes itself as the leading funding database in the UK, covering local, national, and international sources of grants and awards.

In this next section, we’ll cover the many opportunities that might be relevant and applicable to your local business. We’ve also provided links to the organisations.

Chambers of Commerce

Chambers of Commerce are local hubs where you can access a wide range of business support. These local business support centres have been around for over 160 years. There are 53 Chambers in the UK, all accredited by the BCC British Chambers of Commerce. According to their data, they represent over 73,000 businesses of all sizes in many sectors. These businesses employ over six million people across the UK.

Each accredited Chamber of Commerce is an independent, non-profit, private limited company owned by its members. Every Chamber is different, structured to deliver business support to the specifics of a region. Some regions are urban and city-based; others are rural. Some rely on tourism and hospitality, while some are manufacturers and exporters.

Enterprise Zones

Enterprise Zones are designated areas throughout England providing tax breaks and Government benefits to support new and expanding firms. Businesses operating inside Enterprise Zones can receive benefits such as 100% business rate discounts up to £275,000 per business over five years and 100% enhanced capital allowances to help companies make significant investments.

What are small business grants?

From cash awards to tax relief, government grants come in diverse sizes. Typically, government business grants get split into three types: equity finance, direct grants and soft loans.

Equity finance

These can offer start-ups and young businesses a reduction in income tax and investments if they are less than two years old and employ fewer than twenty-five employees.

Direct grants

Money is granted directly to a new business to cover start-up costs, for instance, equipment and staff training. Many grant providers expect your business to provide 50% of the value of the start-up’s budget.

Soft loans

Soft loans are government-backed and may offer repayment terms and conditions more generous than banks and building societies, meaning your business pays lower interest rates or has an extended repayment term.

Small local business grants

Various funding and grant options are available, depending on where your business is based. The Government’s business finance support finder is a valuable resource and database to search for grant and funding options depending on your business size, locality and industry.

Business grants in England

From the North East to the South West, 38 Local Enterprise Partnerships (LEPs) provide funding and advice to help businesses in local economies. Such partnerships between local authorities and local private sector businesses hope to drive economic growth by creating jobs, improving infrastructure, and helping to foster a better range of skills in the workforce.

Business grants in Scotland

Grants from the Highlands and Islands Enterprise, Scottish Enterprise, and local councils are available for qualifying businesses. TheScottish Enterprise system, which provides access to more than six hundred funding options and grants, is the first port of call for a list of potential funding options.

Business grants in Northern Ireland

Grants on offer in Northern Ireland include NISPO II's Proof of Conceptgrant designed primarily for pre-launch start-ups and Invest NI grants for established companies. Enterprise Ireland has additional support and information on help for your business.

Business grants in Wales

If your business is in Wales, then Business Wales' finance locatorcan help you analyse grants your business might be eligible to apply for, where you’ll also find detailed information on the application process.

Combining grants and business loans

By its very nature, the business world can be unpredictable; therefore, your need for funding can change as your business matures. Securing a blend of grants, awards and business loans to give your business the best chance for start-up success and thriving long term is a possibility you should consider.

Some lenders look for other financial commitments you’ve received. If you’re a start-up already promised local grants and other monetary awards used to fund the business, this can impress the lender. You’ll have proven tenacity, and they might decide the risk is less.

For instance, let’s say you want to raise £50,000 and you’ve got a local government grant agreed for £10,000 and a soft loan for £5,000 from a Chamber of Commerce. We can then present this to a potential lender when you apply for the balance of £35,000. The fact that you’ve secured a significant sum from elsewhere might go in your favour because you’re not looking for 100% funding for your business.

Why choose Funding Options to help secure that business loan?

At Funding Options, the synergy of our technology Funding Cloud ™ and our team of Business Finance Specialists do the searching for you. Just tell us how much money you need for your business and when you need it. We’ll find suitable options for you!

Apply for funding

Simon Cureton

Chief Executive Officer

Simon has been Chief Executive Officer at Funding Options since 2019, spearheading its transformation into a leading fintech with the launch of its Funding Cloud platform. Simon has over 27 years of experience in financial services, having held senior posts at some of the biggest players in the industry all over the world.

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