Innovation and enterprise blog

11 posts from July 2014

01 July 2014

Three business funding alternatives

_MG_8703Paul Grant knows what it is like to be on both sides of the funding fence, as an entrepreneur he raised funds for his own business, securing capital from business angels, bankers, family and friends, and even a government grant.

Here the gives an insight into alternative ways to secure business funding.

When I started my business the only way to get a business loan was by dressing up in your smartest suit, writing a lengthy business plan and heading for your local bank manager.  The process was painful and slow. Thankfully today there are many more alternatives. 

Here are three popular and proven routes to secure business funding.

Crowd lending

Last year one of my coaching clients was having difficulty getting her bank loan approved.  This was despite four years trading, steady growth and never making a loss. After little sign that her bank were likely to give the loan, it was time to try something different.  She applied for a loan with crowdlending platform, The Funding Circle.

Crowdfunding makes it legal to secure capital from the general public who put in sums as little as £10.  In the case of crowdfunding for a loan, you will need to go through the various checks you could expect from a bank and be able to show two years of trading history. 

Crowd lenders receive anywhere from 8-11% interest per annum on your loan.  In the case of my client, she received £40k within one week of applying, paying an interest rate of 8.75% over five years.

Startup loans

The government have created a £112m fund that is designed to fill the gap where banks will not go - startups that are less than one year old.  An entrepreneur that attended one of my workshops designed unusual jewellery to be sold online.  She needed capital to develop a website and produce some stock. 

No bank would look at it, but she raised an £8k loan though which is one of the partners the government needs to qualify the loans and provide mentoring for the entrepreneur.  The application procedure was simple and supported by a brief business plan. 

There was no collateral or personal guarantee required and the interest rate was 6%. It is however worth considering that the loan is a personal loan for business purposes.

Short term loans for cash flow

There is a new trend of providing short term loans for young companies. Iwoca has loaned millions of pounds since 2012 and is fully regulated.  An entrepreneur with a six month old startup producing a new healthy range of snacks was close to running out of stock and did not have enough capital to place the minimum order needed by the manufacturer.  So he applied to Iowca and received the capital needed to buy the critical stock so he could continue trading.

The Iwoca application process is simple and can give a decision on a £1-50k loan application within hours.  There is a monthly interest of 2-6% which is expensive but loans can be as short as one week to six months.  There is no arrangement fee. Also the entrepreneur applying needs to only have four months trading and online sales of over £10k per annum.

If you want to learn more about funding for your business, come along to Paul’s workshop How to attract the right investors to your business which is held in the Centre every month.