A small business guide to alternative funding

16/04/2014
There's plenty of support for startups and growing SMEs seeking financial backing outside of the banks
Banks seem to be closing their doors to startup businesses, but that shouldn't deter entrepreneurs from seeking funding. In fact, there are more funding options open to startups than ever before as new services have emerged to fill the gap.
Emily Brooke, founder and chief executive of Blaze, has tried several different sources of funding for her business which provides innovative products for urban cyclists.

Early on she used Seedrs, an equity-based crowdfunding platform, and Kickstarter, where she achieved her target of £25,000 in just a few days. She chose the crowdfunding route for three reasons: "Firstly, proof of concept and the ability to validate the idea before speaking to distributors, retailers and manufacturers; secondly, to get feedback from early adopters; thirdly, to increase awareness," Brooke says.
She has also used business angels (individuals of high net worth) which she found to be a fairly easy process, as well as venture capitalists ("much more complicated"). Angels provided individual support, though they lacked the "deep pockets" she might have needed down the line. Venture capital was process-intensive and a big decision to take on, but provided "incredibly valuable learning and validation of the business".
Boundaries between the different funding routes are blurring as crowdfunding becomes mainstream and more traditional funding providers embrace the channel. Angels Den in Scotland, which runs "speed funding" events (where startups can pitch in three-minute bursts to up to 30 investors in one day), now also provides online crowdfunding supported by its angel network.
Meanwhile a newly launched crowdfunding platform, kriticalmass, lets projects court sponsorship and endorsement from major brands and celebrities, in addition to generating funds and sourcing volunteers.
Crowd-based loan options are rising in popularity too. Peer-to-peer (P2P) lending matches private investors or businesses with borrowers. There are two types of online P2P platforms: for consumer lending through companies like Zopa, or business lending through the likes of Funding Circle. For the borrower it can provide a rapid route to ready cash, while lenders can expect a return of around 6% on amounts lent.
Exmoor-based livestock haulier Denis Fuller Livestock Transport used local P2P lending enterprise Folk2Folk to acquire bigger premises. Having found the ideal premises, the family-run business didn't have time to sell its current premises first, or go through the time-consuming process of organising a bridging loan from a bank, says owner Helen Fuller. "We had the money within a week of making the applications. We borrowed 60% of the money to buy the new premises, and will repay it when we sell our current smallholding."
First Enterprise Business Agency (FEBA) is another regional lending option. It is a community development finance institution supported by the European Regional Development Fund – one of more than 40 organisations, nationally, that lend money to businesses and individuals that may struggle to secure funding from high-street banks. FEBA provides loans of between £3,000 and £100,000 to startups and growing businesses across the East Midlands region, and has £3m to invest in the region by 2017.
Other sources have a more personal interest in lending locally. Peter Saunders is an entrepreneur, business angel and philanthropist who is passionately committed to his local area in rural Wales. He has just launched a business loan scheme to support startups in his village of Tywyn, through a trust he has set up. "The aim is to provide local people with an initial level of funding to help them take the first step – those who may have no business experience," he says. "We're offering micro-loans of up to £3,000 and saying 'It is possible'." Mentoring will be provided by Purple Shoots business lending in South Wales, a not-for-profit organisation which will process the loans and provide associated business support.
Often it is this practical help that is a deciding factor in entrepreneurs going for funding. Raj Dhonota, a former contestant on The Apprentice, believes this can be a drawback of crowdfunding. Dhonota, a serial entrepreneur, has just unveiled a £1m startup fund for new businesses. The venture is funded by Dhonota personally, and will provide finance, resources, expertise, contacts and a fixed growth plan. "Crowdfunding takes away the personal interaction between investors and entrepreneurs which is critical to an entrepreneur understanding where their proposal is flawed or can be improved," he says.
Business accelerators can also be a good source of hands-on help. Rose Lewis, co-founder of specialist B2B accelerator Collider, says: "The accelerator is an exciting funding route. Startups apply to enter a programme, receive investment, mentoring and all sorts of connections that will heavily increase their chances of success. There are a lot of programmes out there but the best are those with the biggest networks."
The UK government, which has pledged to do more to help small businesses, offers a number of competitions, grants and schemes that startups can apply to depending on the field and the current state of the venture.
Angel CoFund is a £100m government fund that invests alongside business angels. It puts up amounts of £100,000 to £1m for SMBs with high growth potential, working with syndicates of experienced business angels that can help the companies fulfil their potential.
The government is also an indirect source of startup loans. Tweezy, a startup with an invention that removes facial hair, benefited from a government-backed Launcher Loan. This was provided by School for Startups, a delivery partner for the government's StartUp Loan Company, founded by former Dragons' Den investor Doug Richard.
Other funding alternatives are listed on a new internet portal, Alternativebusinessfunding.co.uk. The site uses a traffic-light system to signal which routes might be the most appropriate for each startup. In addition to crowdfunding, alternatives represented include pension-led funding using directors' existing personal pensions to raise capital for their business, and invoice finance aimed at raising short-term working capital quickly.
Other avenues
Alex Schey, chief executive of Vantage Power, a company bringing diesel-electric hybrid technology to city buses, highlights some other options for getting a new venture off the ground financially
Government grants: If you're a technology company, try the Technology Strategy Board, Department of Energy and Climate Change, or the Manufacturing Advisory Service. There may be a competitive application process, but if you get a grant you could see up to 90% of your project funded. As it doesn't dilute your equity, it's also a very efficient form of funding.
Competitions: There are numerous competitions and awards to apply for, which are often accompanied with no-strings attached cash and a raft of public exposure. Shell Springboard has £330k up for grabs each year and PR support that can be instrumental in making your market aware of who you are and what you're doing.
Company grants: Struggling to afford that special piece of hardware, or desperate to get hold of the latest piece of software? Check if the company in question runs a grant programme for small businesses – often they have unbelievable deals to help get startups on their feet. Great examples of this are Autodesk and National Instruments.

By: theguardian.com

LEGGI GLI ALTRI BLOG

• < Prec
• Succ >