Alternative funding sources
There are a wide range of funding sources available for businesses, outlined below are some of the main forms a business could apply for.
Venture Capital Finance
For businesses that require larger amounts of equity to achieve its potential, accessing Venture Capital finance may be the best alternative. Venture capital funds invest in companies in exchange for equity in the companies they invest in, which usually have a novel technology or business model in high technology industries. The typical venture capital investment occurs after a seed funding round as the first round of institutional capital to fund growth (also referred to as Series A round) in the interest of generating a return through an eventual exit event, such as an IPO or trade sale of the company. Venture capital is a type of private equity.
You can find Venture Capital and EIS funds in our Member Directory.
For most entrepreneurs at the seed and start-up phase, seeking to fast grow their business, bank finance in the form of loans is not suitable until they are able to generate regular revenues to service the debt. Providing equity investing, taking shares with a view to gaining a return or dividends on successful growth, without requiring regular repayment, can therefore be a better source to incentivise and support growth at this stage in the business.
Nevertheless, as the business grows and become profitable, you may wish to explore accessing bank finance through such schemes as the Enterprise Finance Guarantee scheme. Many banks will be interested in dealing with businesses that have received angel investment having been supported with equity and sound business advice.
Although business grants can come from a variety of local, national and international sources, it’s important to check your business’ eligibility before making an application. Most grants tend to be geared towards research and development, employment and training, as well as schemes with an environmental slant.
You can find a number Grant Funding specialists in our Member Directory.
Asset financing is a useful way of spreading cost against the lifespan of a car or other piece of expensive machinery necessary for the running of your business. Effectively you are renting the vehicle from the lender until the loan has been paid in full. You also need to show that you can afford the asset, as well as demonstrate how the loan will benefit business and promote growth.
Venture Debt is a loan product available for early-stage, fast growing businesses who are willing to leverage company assets to raise funds. Venture Debt is often used as project based finance for a specific purpose, allowing businesses to achieve new milestones without diluting their equity share. Venture Debt carries a higher interest rate due to the higher level of risk for investors. Venture debt is provided by companies like Crowd2Fund and Harbert European Growth Capital provide Venture Debt.
Invoice Discounting and Factoring
Invoice discounting is a form of short-term borrowing often used to improve a company’s working capital and cash flow position.
Invoice discounting allows a business to draw money against its sales invoices before the customer has actually paid. To do this, the business borrows a percentage of the value of its sales ledger from a finance company or online platform, effectively using the unpaid sales invoices as collateral for the borrowing.
Peer-to-peer lending (P2P) is an online process that matches investors with savings or capital directly with borrowers looking for a loan. There are two types of P2P platforms – P2P consumer lending through companies like Zopa or P2P business lending through companies like Crowd2Fund and Funding Circle.
Pension-led funding uses directors’ personal, existing pensions to raise capital for their business. It provides funding without having to give a personal guarantee to a lender and can provide protection for business assets held within the pension scheme. Funds come from existing pensions and are repaid to the scheme with interest at a commercial rate.