Starting up a small or medium sized enterprise (SME) can be tough at the best of times. There’s so much to get right, not least of all, your small business finance. Finding that all important funding can be a real challenge.
But don’t give up if you fall at the first hurdle. There is always funding available from somewhere to help you get off the ground. The key is in knowing where to look! So, if you feel like you don’t know where to start, or that you’ve run out of ideas, here’s our helpful guide to where to find those secret stashes of SME funding.
Crowdfunding is an alternative form of financing a project or venture via the internet by raising small amounts of money from a large number of people. You might think that there isn’t much chance of being able to raise large amounts of money through this channel, but in 2015, over $34 billion was raised worldwide through crowdfunding, making it a very successful and very popular form of raising funds. You do not even need to be particularly tech savvy to use this method; it’s so straightforward and user friendly.
Platforms such as GoFundMe, Crowdfunder and Crowdcube have millions of users and have raised millions of pounds for projects that just needed someone to believe in them in order to get off the ground. Crowdfunding works by bringing together supporters and groups of people who want to work together to turn great ideas into reality.
Crowdfunding has become mainstream in a very short space of time due to its popularity. This may be due to the fact that banks are increasingly cautious about lending to small businesses, and savers have seen such poor rates of interest on their savings that they have been looking for better ways to invest their money, and being a part of someone else’s successful scheme is a great way to get better returns than a savings account can give.
However, with up to 80% of the crowdfunding campaigns listed on some of these sites being eventually withdrawn due to lack of investment, it might not be the easy money-raiser many would have hoped. And it certainly takes a lot of campaigning to get the kind of support that the most successful ventures have achieved. Your launch and marketing must be exceptional to really take advantage of this source of funding.
- Seek an angel investor
Angel investors are successful people who wish to invest in new business ideas and budding entrepreneurs in whom they see the potential to make a great profit with. They are the kind of people you see in the popular TV show ‘Dragon’s Den’.
In order to successfully win over an angel investor, you need to impress them with your idea, your strategy, your meticulous business plan, your eye for detail and clear analysis of what your business needs to be successful. You will also need to be able to tell them how you are going to achieve your goals and the length of time you need to make enough money in order to pay them back.
If the angel investor shares you goal and believes in your as a business innovator or leader, they may be willing to put their faith in you – and their investment funds – in hopes that you will make them a healthy profit in return. But remember, they will sometimes want more than just a share of the profits. They may also want a share of your company. It is down to you to decide just how much you are willing to give up in return for their investment capital and their mentorship.
- Seek venture capitalists
Venture capital is a type of funding that is available to new and growing businesses. A venture capitalist is a person who invests in a business idea by providing it with capital to start up or expand. The majority of venture capital comes from professionally-managed public or private firms who specialise in funding new and high-risk business ideas – only a few venture capitalists are actually individuals. Usually, in this process, the firm will offer start-up loans to new firms in exchange for equity.
It is not always an easy task finding a venture capitalist who is willing to invest in your business idea, because they ideally look for the next big thing, and as such, many entrepreneurs find themselves bending over backwards in order to persuade their backer that their idea is bigger than it actually is, which can be risky.
This is usually a short-term investment, and the capitalist will want a return on their investment as quickly as possible, but, if you are lucky enough to find one, it could seriously sort out your small business funding issues.
These capitalists, however, often place high-interest rates on their loans, and they will require you to make money very quickly, and therefore if your idea needs time to materialise, or develop, then this is possibly not the route for you.
Venture Capitalists often require people to put up some of the money themselves too, because they want to see your commitment to the idea as well, but if you have some funding in place and can convince someone to believe in your vision and your passion, then you may just be looking in the right place.
The above are just three ideas – in reality there are lots of ways you can seek funding for your new business idea, so don’t give up if you have a great idea but an empty bank account. You could try asking friends or family for a small loan or investment, or seek out a government grant if your business fits the criteria. But keep looking. Many hugely successful business owners struggled to get funding the first time around, but they kept going because they believed in their business and had the vision to see it through, and ultimately, someone else could see it too.