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Running a small business can require a lot of money. Whether you need help with rising business costs, or you want to launch a new product and need capital to drive it forward – don’t be afraid to ask for help!
Some funding options require more consideration than others. For example, if you choose a bank loan you need to think about interest rates, whilst a crowdfunding campaign might mean offering rewards to investors.
We’ll look at the different funding options to help you decide what’s right for your small business.
Bank loans and overdrafts are popular with many small businesses. Researching the different types of bank loans and lending facilities available will help you understand which one is most suitable for your business
If you feel interest rates are too high or that you may struggle to repay the loan, it may be more suitable to look at other options. You don’t want to damage your credit score or put your business in financial hardship.
Every bank is different, but most will typically ask for:
Applying for a business loan can be a tedious task, so we’d recommend preparing these documents before you apply to help the process run more smoothly.
This could be more suitable if you’re looking for short-term funding. The Merchant Cash Advance lender will provide your small business with an upfront sum that you’ll repay from a percentage of your card sales (fees may be included). To qualify, you’ll need to accept both debit and credit card payments.
An angel investor is someone who has a high net worth, and the money and resources to help grow your business. They’re usually heavily involved in the day-to-day operations of a business – which is great for start-ups who need more guidance. This is because they expect to make a profit, with an equity stake in return for their financing.
This is where investors (or individuals) donate smaller amounts of money to reach a larger goal. You may already be familiar with crowdfunding platforms such as GoFundMe which are used by private individuals as well as businesses.
Crowdfunding is great if you have a specific project (or product) you want to raise money for. It can also be great to pre-sell products and receive the capital in advance which allows you to build them.
Lots of platforms give you the ability to post updates, so anyone who’s invested can see how far you’ve come, and potentially donate more.
A grant is usually awarded to a business to help it grow. There are different types of grants though, and it’s important to remember what each of them means.
Always look at the terms and conditions before you apply for a grant, to ensure you qualify and understand any rules or regulations regarding it.
To put it simply, a loan is something you pay back, often in a set number of repayments. A grant is yours to keep, meaning you’re not required to pay any of it back.
Grants are usually publicly funded and awarded to businesses by either the government or a charitable organisation or trust. A loan is often from private lenders, such as banks, who charge interest on the amount borrowed and how long it’ll take for your business to pay it back.
You don’t want to pitch to an investor without being prepared, or have the bank ask for financial statements you don’t have. Here are our top tips for preparing, whether you’re applying for a bank loan, pitching to an angel investor, or looking for a direct grant.
No matter what type of funding you’re going for, you’ll need a solid business plan. For example, if you’re applying for a grant that will help your business expand, you’ll show what your plan is to achieve that goal. Or if you want to pitch to an angel investor, you’ll include your plans for the future, and how much you plan to make (so they know whether it’s worthwhile investing).
Running a small business is already tough, so the last thing you want to do is apply for things you don’t even qualify for. For example, if there’s a matched grant available that requires you to have a certain amount of your own funds or a government grant specifically for small businesses in a different district.
This allows you to focus on the funding you have a chance of getting – so no time is wasted!
Investors, banks, and organisations are likely to ask for any forecasting documents that allow them to estimate or predicate how well your business is doing, and how it will perform in the future. This includes:
Good bookkeeping software can assist you in making these reports, so it’s also good to review these frequently and monitor what areas of your business are doing well – and whether you’re struggling anywhere.
Different lenders and investors may require different documents, and some may want to see your financial records for the last 6 months, while others ask for up to a year.
Need more guidance for your small business? Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat with the team and get an instant quote online.
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