Alternative sources of small business finance
When looking to grow your business, sometimes an injection of extra cash is required. Normally businesses approach their bank for a loan, but following the global financial downturn traditional routes of small business finance are often unavailable.
If your business cannot secure a loan from a bank, all is not lost. The following alternatives may help you get the money you need to fund your expansion plans.
Business angels
Operating on a similar principle to BBC2’s Dragon’s Den, business angels offer your business cash injections in return for a stake in your business. These investors are experienced business people looking to make a profit, so don’t be surprised if they demand a larger share in your operations than you might be comfortable parting with.
Although angel investors operate in a very similar manner to venture capitalists, the small business finance that is provided tends to come from their own resources. According to some studies, businesses supported by an angel investor are statistically less likely to fail than those reliant on other forms of funding.
You can find out more about Business Angels and funding schemes here.
Crowdfunding
A modern phenomenon, crowdfunding sees businesses and individuals inviting Internet users to invest relatively small amounts. In effect these investors are pre-ordering (and pre-paying) for your new product, before it has even been manufactured.
Crowdfunding can be used to secure investment for services and even ideological causes, but tends to work best for physical products. Crowdfunding leverages the power of social networks to publicise products early and attract new investors.
The most popular crowdfunding platform is Kickstarter, attracting businesses and investors from across the world.
Grants
There are a wide variety of grants – non-repayable loans – available for all manner of projects and purposes. Grants are often provided by the government or the EU to fund specific business activities in line with certain strategic policies. Products and services that help businesses improve their environmental friendliness tend to be highly well-financed for instance.
Unlike other forms of funding however, grants cannot be used for any purpose – the money must be spent for the specified purpose. The application process can also be extremely onerous as awarding bodies need periodic evidence that the investment is being spent correctly.
Grants are also notoriously difficult to track down – the EU funding pages are a good place to check first.
Your accountant
Your specialised small business accountant may well be able to point you in the direction of an alternative funding source. Where you use a specialist small business accountant they will be well aware off the various funding avenues open to you.
Your accountant will also be able to provide valuable advice about any of your funding plans, ensuring you are fully aware of any tax obligations or other caveats. Using this information you can then ensure that you are not only getting the money needed to grow, but also avoiding unnecessary additional costs that eat into your capital.
