Funding Options for Small Businesses

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!

In this article we’ll go over a few of the options you might consider to help you fund your business and look for finance.

Different types of funding

There are lots of different ways you might be able to find financial support for your business. Even businesses with poor credit may find it possible to find funding.

You might also find specific types of funding are available for businesses at different stages, such as those looking to fund a research project, grow into a new country, or start-up businesses which are looking for finance.

Bank loans

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.

What do I need to apply for a bank loan?

Every bank is different, but most will typically ask for:

• Trading accounts
• Your current business plan
• Financial reports such as your profit and loss statement
• Cashflow forecast
• How you plan to use the loan

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.

Merchant cash advance

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.

Angel investors

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.

Crowdfunding

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.

Grants

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.

• Grants for start-ups: If you’re looking for funding, you’ve likely come across ‘direct grants’. This is the most common type of government grant, which usually helps cover all the essentials of starting a business (including training staff and equipment). You can stay updated on the latest small business grants by checking out direct government grants on the GOV website.
• Matched funding grants: This is where you pitch your project to the likes or trusts, social banks, or any other social organisation, and if awarded a grant, they’ll simply ‘match’ the funding you already have from other sources. This is popular amongst nonprofit organisations!
• Dedicated grants: These are usually given for a specific purpose or project such as renovating your office or expanding a certain area of your business. You must spend every penny of the grant on what it was granted for. For example, if you were given a dedicated grant for office equipment but decide to put the last bit of it towards marketing – this would not be allowed.

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.

What’s the difference between a loan and a grant?

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.

How do I prepare a funding application?

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.

Have a business plan ready

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 which will help your business expand, you’ll show how you plan to achieve that goal. Or if you want to pitch to an angel investor, you’ll include your vision for the future, and what you expect to earn so they know whether it’s worthwhile investing.

Read the terms and conditions before you apply for a grant or loan

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!

Ensure you have your financial reports at the ready

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.

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.