Options for funding growth in your small business

When starting their own business, many people use personal savings or funds borrowed from friends or family. Some are fortunate enough to secure a start-up grant or loan, or sometimes banks provide help with funding.

As the business becomes more established it may have its own cash reserves, but investing them all in growing the business could leave it dangerously short of working capital.

Nicola Roby, director at CHW Small Business Accountants in Bolton looks at possible funding options if you want to grow your business.

Bank loans and overdrafts

Approval rates for small-business borrowing applications are surprisingly high. According to UK Finance, the body which represents banks in the UK, in the last quarter of 2017 banks approved eight in 10 small business loan and overdraft applications and nine in 10 loan and overdraft applications from medium sized business.

So, getting a bank loan or overdraft might not be as difficult as you imagine.

Speak to your current business bank to find out what funding solutions they can offer. Ask what security is required and carefully consider whether you can meet the monthly repayments. It’s wise to seek advice from your accountant.

There are many “challenger banks” which are rivals to the high-street heavyweights, so explore all options. If you’re turned down for a loan because you can’t offer security, the Enterprise Finance Guarantee scheme could offer a solution.

Government grants and loans

It’s not just start-ups that can apply for government grants and loans. New businesses (up to two years old) can apply to borrow between £500 and £25,000 for a low fixed interest rate from the government-backed Start Up Loans Company. The government website https://www.gov.uk/business-finance-support provides details of what finance and support is available in your region or sector.

Business angels

These are typically highly successful business people and entrepreneurs who invest in the region of £20,000-£200,000 in early-life small business in return for equity. They usually sit on the company’s board and help decide how the business is developed.

‘Angels’ usually have valuable experience, knowledge, contacts and cash. The downside is that this type of funding does involve giving up some control and ownership of your business.

Crowdfunding 

Crowdfunding can offer a way to raise finance by asking a large number of people to each pay a small amount to help a business to launch or grow. Founded in 2010, Funding Circle was the first online platform to provide peer-to-peer lending to small UK businesses and it has since facilitated £3.4bn in loans to 35,623 businesses. There are other providers available.

Venture capital and private equity

Venture capital is a form of investment for early-stage, innovative businesses with strong growth potential.

Venture capital provides finance and operational expertise for entrepreneurs and start-up companies.

The main difference between private equity and venture capital comes down to the age of the company. Private equity will typically invest in a mature company, one which has been in operation for many years, if not decades. Venture capital by contrast will invest in new companies many, if not most, of which will not yet be making a profit, but which have a business offering with the potential of very strong growth. Businesses seek venture capital investment for a number of reasons, such as to grow their manufacturing and sales operations, enhance their product development and/or expand their business and hire new staff.

Nicola says “In many cases, you’ll need a mixture of funding sources if you want to grow your business. You will need to determine how much you need and how it will be spent. Investors will expect a clear idea of when they’ll get a return, while lenders will want to be sure you can afford the repayments. In any case, you’re more likely to succeed if armed with a sound business plan.”

For further advice on obtaining funding for your small business or to discuss any other issue contact Nicola Roby at CHW Small Business Accountants in Bolton on 01204 534031 or via our contact us page.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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