Simon Orr, Business Adviser at STEP has put together some potential funding routes for new and growing businesses.
So you have a world-changing business idea; you’ve started a business and are ready to grow or it’s been a tough year and your struggling; It’s no shock that in circumstances like these business owners look for funding.
Don’t panic though, funding doesn’t necessarily need to mean taking on debt.
Working in the Banking industry for years, I’ve experienced the many highs and lows of business funding and throughout the years, I’ve gained some insights into different funding methods.
The term bootstrapping comes from the phrase “to pull oneself over a fence by one’s bootstraps” and in funding terms means to fully self fund your business.
This is often the first port of call for startups. It allows them to prove their concept and that their business has legs.
After all, if you’re not willing to put your money in, who else would be!? Be careful though, don’t overstretch yourself to financial breaking point. If your savings are enough to take your venture to the next level without compromising your quality of life, go ahead, if not re-think!
If you need a quick short term cash solution a business overdraft from your bank may be the best option. Some banks offer new businesses a free business overdraft for a period of time but do keep in mind that this needs to be repaid or you could face high charges.
Business cash advance
If your business uses a payment merchant like Worldpay there may be an option to get a cash advance on future payments. Providers can lend money you expect to be paid in the future. The debt will then be repaid when your customers pay you.
Crowdfunding does what it says on the tin—a ‘crowd’ funds your business.
This type of funding has become increasingly popular over the last decade with many ’out of the box’ products going to market simply with the power of the crowd.
Crowdfunding works on a reward basis which means supporters will donate money for something in return. This could be a free product, a discount voucher or some other perk.
Stirling is one of the first Council’s in Scotland to team up with Crowdfunder UK. The team, based here at STEP, offer training, advice and assistance to allow you to add your project to their platform. They are on hand to ensure projects have a digital presence to gain support and attract a large network of potential sponsors.
Projects listed on Crowdfunder Stirling that meet specific criteria can also seek match funding of up to 50% of their target from Stirling Council.
If you think your business could benefit from crowdfunding you can find out more at www.stepscotland.co.uk/funding-support/crowdfunding
Whilst incubators don’t directly offer funding, they can nourish businesses through the early stages where funding is tight. They can also help to provide resources that you would normally need to fund, such as premises and business support.
Accelerators work in a similar fashion to incubators except have a more defined program structure and hands-on approach to support rapid growth.
Both accelerators and incubators can be great for start-up businesses who are looking for investment but just aren’t ready for that stage. These programs can support to get them there.
Angel investors are groups of private individuals set up to invest in start up and emerging businesses.
Companies go through a pitching process and then may be offered funding typically starting at £20,000 in exchange for a percentage of equity in your company. To be successful in gaining angel investment you need to be ready. You will ideally have proven your business concept, have a forecast of future growth, an exact idea where the funding will go and an idea of when investors will see a return.
Competition funding, although a remote avenue, can work in a start-ups favour. There are a plethora of business competitions, opening and closing at different times and offering prize money, here are just a few: The Catalyst Award, Fresh Ideas, Scottish Edge, Converge Challenge, Innovator Launchpad. The key is finding the one which is right for your business so you are not wasting large amounts of time on a competition entry which is unlikely to progress.
Many small business owners will take the traditional route of applying for a business loan when looking for funding. The main challenge when looking for a business loan is finding the right one to suit your needs. Whether it’s a short, medium or long term loan; whether it’s secured or unsecured; whether it’s at a fixed or variable rate; and finally whether it’s from your bank or another lender. These are all things you will need to consider before applying for a loan. Remember that if you randomly apply for a loan and get turned down, your future borrowing prospects may be affected.
There are several sources of government funds. These may be through organisations such as Scottish Enterprise, Skills Development Scotland, Business Gateway etc… Funding programmes change regularly so it is best to speak to these organisations often to see what is available.
Lastly, come see me!
If you are at a stage where you need funding it’s important to do the groundwork. You need to understand your business inside and out and know exactly what amount of funding you are looking for, for how long and what it’s going to be used for.
You need to understand the cash amount your business needs, know your pitch, your facts and figures religiously. I recommend asking for introductions—don’t be shy. Get yourself into positions where you’re talking to the right people. Don’t just look for and expect cash—people could offer you resources, time and expertise. Also, it’s important to have a plan b—what are you going to do if there is no immediate funding available?
As a Business Adviser at STEP and Business Gateway Stirling, I’m on hand to discuss what funding options you have available. Please get in touch with me on Sorr@stepscotland.co.uk.