Support guide

Types of Finance and Funding

Find out the range of finance options available for growing businesses..

What should you consider when your business is up and running?

Make sure you closely manage your cash, and your profit and loss. Cash flow is the net amount of money moving in and out of the business. Check that you are making enough money to reinvest in the business and that you could withstand late paying customers.

What if your business needs to raise finance to grow?

The most suitable finance option for your business depends on many things. These include how much funding you need, your current or potential revenue, whether you’re willing to offer personal or business assets as security, and whether or not you’re willing to sell shares in your business. Today, the choice of finance options available to small companies is now far greater than just the principal banks. For more information to help you find out how to access affordable and appropriate finance go to www.greatbusiness.gov.uk/finance or www.thebusinessfinanceguide.co.uk.

The British Business Bank, also provides useful information about different finance options.

Types of finance and funds available include:

Bank loans

A loan is a traditional way of financing a business. You can apply for a loan from a bank. Always check the interest rates payable on any loan you are considering taking out and ensure you can pay it back in the agreed time.

Start-up Loans

A Start-up Loan is a government-backed personal loan available to individuals looking to start or grow a business in the UK. In addition to finance, successful applicants receive 12-months of free mentoring and exclusive business offers to help them succeed. The loan is unsecured, so there’s no need to put forward any assets or guarantors to support an application. All owners or partners in a business can individually apply for up to £25,000 each, with a maximum of £100,000 available per business. A number of companies administer the Start-up Loan. Click here for more on Start-Up Loans

Thames Valley Berkshire Funding Escalator

The Thames Valley Berkshire Local Enterprise Partnership (LEP) has committed £11.3 million of capital to create a funding escalator of loans and equity across four funding initiatives managed by The FSE Group. If you are an ambitious SME based in Berkshire, already trading and with the potential to deliver high growth and employment opportunities, you may be eligible to apply. To find out more, please contact us on 0118 209 0000 or click here.

Innovate UK funding competitions

Grant funding is available from Innovate UK for specific projects – a list of current Funding Competitions can be found here.

Equity or investment finance

Equity (investment) finance involves raising money through private investors, venture capital funds etc. Equity investment involves selling shares in your business. The investor will take a share of any profits or losses you make. Depending on the terms of the investment, you might have to consult with them before you make certain decisions. However, you will not have to make repayments in the same way that you would if you took out a loan. Equity investment does not need to be repaid. Investors often have knowledge and experience to bring to a business as well as their financial investment. Plus, if things do not go to plan and your business fails, the investors share the risk.

Private investors may choose to invest in your company through the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS). These are Venture Capital Schemes by HMRC to encourage private investors to support innovation. Investors receive a tax break as an incentive for investing in early stage companies. If you are looking to raise angel investment, getting SEIS/EIS Advance Assurance increases your chances of success. ‘Knowledge intensive companies’ can raise almost double the funding limit of EIS and have 10 years rather than 7 to do so. Many tech start-ups are eligible for this.

Some startup and early-stage businesses meet potential investors by pitching to Angel Investment Groups or Networks. Henley Business Angels and Oxford Investment Opportunity Network (OION Ltd) are examples of active investment groups in the Thames Valley. It can be useful to pitch to a wide range of investment groups to ensure that you meet as many potential investors as possible. This ensures that you don’t put all your eggs in one basket. It is also sometimes the case that angel investors will syndicate across investment groups when investing in a company (i.e. a company may raise their investment round from investors that they’ve met at several pitching events). Details of further investment groups can be found on the UK Business Angels Association (UKBAA) website. It is also worth bearing in mind that raising investment for your company takes a great deal of time and resource which would otherwise be spent on building your business. It is therefore important to make sure that you time your investment raise correctly, when your business is ‘investment ready’ and most likely to secure investment from investors.

Useful articles on investment:

R&D Tax Relief Programme

This scheme was introduced by the government to support innovative businesses by providing them with a tax relief of up to 33%. Click here to find out the latest intelligence on key R&D schemes in the UK, including patent box and tax credits.

Asset finance and leasing

Leasing or renting assets such as machinery or office equipment can save you the initial costs of buying them outright. In addition, asset finance may have other benefits for your business (cash flow, tax, etc.)

Crowdfunding (or peer to peer lending)

Crowdfunding is a relatively new way to raise finance. It mobilises the power of the internet to pitch a business to a mass audience. This does mean a lot of marketing and awareness raising is required to generate interest in your business proposition. There are different types of crowdfunding. For example, there is donation crowdfunding, where individuals may donate funds to a charity, cause or community project, and reward-based crowdfunding, where individuals donate funds to support a business in return for a reward such as a discount, membership or tickets. There are a number of crowdfunding sites online including CrowdCubeIndiegogo and KickStarter.

Alternatively, there is equity crowdfunding, where individuals will invest funds in a business in exchange for a stake/share in that business. You will need to carefully consider how much you want to raise and what share of the business you are willing to give up. With crowdfunding you need to raise the amount of money you set in a fixed timeframe. If you don’t raise at least your target amount, you don’t receive the money. Equity crowdfunding sites include Seedrs.

Other sources of funding and information tools

Konfer

You could also access konfer, which is an innovation brokerage tool designed to help businesses access funding opportunities and connect innovators with experts, researchers and services in UK universities and research organisations. The website has a useful funding finder tool, which you’ll find here.

Low Carbon Workspaces Grant

Low Carbon Workspaces are now delivering a total pot of £375,000 in grant funding to help small and medium sized enterprises based in Berkshire identify energy reduction opportunities and to subsidise the cost of energy efficiency solutions. 75 grants of between £1,000 and £5,000 are available to help fund up to a third of the cost of energy saving measures such as insulation, LED lighting, energy efficient boilers, air-source heat pumps and electric vehicles. Full details on the grants and how to apply can be found on the Low Carbon Workspaces website.

British Business Bank

This is a government-owned business development bank dedicated to making finance markets work better for smaller businesses. The British Business Bank provides information on finance options for businesses at different stages. It does not lend or invest directly, but works with over 130 partners such as banks, leasing companies, venture capital funds and web-based platforms.

What else do you need to know?

In almost all cases, where you seek outside funding, you will need a written business plan. You can find advice on writing a business plan and a free template here.

For any type of equity (investment finance or equity crowdfunding), you may need to consult with an experienced accountant to value your business, seek legal advice on any agreements/contracts and consider how you will keep your shareholders informed.

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