Funding is invariably a problem when you are starting out in business. And then, when you’re starting to establish yourself it’s not unusual to hit another funding gap. More orders start to come in and you don’t have the funds to get the stock or pay the salaries until payment is due. Or you need that new piece of equipment or refurbishment to get to the next level or stay competitive.
Whatever the reason, more businesses close down because of poor cashflow than any other reason; not because they are unsuccessful, but because they don’t have the funds to plug that gap. Try to plan ahead and anticipate funding needs and from the start make sure that you have a great credit control and financial management system in place.
When and if you do need funding, here are some ideas to think about:
- Relatives or Friends are one of the main sources of finance for small business owners looking for support. But make sure you have a clear contractual arrangement. Clarity from the start will help you maintain good relations if things go wrong.
- Shares in your business could be sold to your personal contacts or to an outside investor. However, be aware that many investors will want a sizeable chunk of your business – or even control – before they will risk their cash. The UK currently has one of the best tax break schemes in the world, the EIS, for anyone investing in an eligible business or startup.
- Start-up Loans is a government-backed scheme in the UK offering loans of up to £25,000 at a reasonable interest rate to new businesses. They come with advice, support and a mentor.
- The Enterprise Finance Guarantee Scheme If you don’t have the security needed for a bank loan, don’t despair quite yet. If the bank approves, you might get backing via the Enterprise Finance Guarantee facility. Ask your bank for more details. In the USA there are also government schemes offering business loans for women.
- Community Development Finance Initiatives (known as CDFI’s) can also provide loans for businesses with a viable proposition and no security. For CDFIs in your area see our article on community banking.
- Small grants. Small grants are increasingly rare, given the state of government and local government financing. But there are still some available locally. It may be worth talking about grants to your local Enterprise Agency or your Council’s economic development unit. For tips on how to increase your odds of grant funding success, check out our article on grants for women in business.
- Social enterprise. Unltd have a range of grant and loan schemes for social enterprises.
- For the young. If you’re a ‘young person’ get in touch with Prince’s Trust and ShellLivewire. Both offer awards, grant and loan schemes. You could also look into the Government backed Startup Loans for young people aged 18-30.
- Raising finance on a credit card for business purposes can provide a stopgap solution. But make sure you understand the worst case scenario if your plans don’t work as you hope.
- Crowdfunding is another fast-growing new source of finance – where women do better.
When approaching individuals or organisations for finance you will need a good business plan. You can download our free template here. Adapt it for every pitch. Put yourself in the lender’s shoes and show how you will repay the money. Writing a plan for your business will give lenders a great overview of your business journey and also remind you of why you do what you do, what you’ve achieved and where you want to be. Enjoy the journey!