Practically every business requires funding. It might be needed to start up an enterprise or to expand an existing business in order to take advantage of new markets, new products or new marketing ideas.
Finding the appropriate funding might be one of the major headaches for any business at any stage of its development, so here are a few suggestions on commonly used sources:
- many small businesses are started up thanks to the finance provided by the owner personally;
- family and friends may also be approached for such initial funding, although it is important to come to some formal agreement on repayment terms or share in the business;
- the high street bank was traditionally the first port of call for anyone looking for that initial funding to start a business;
- the same bank was then later approached for further funding – through overdraft facilities and loans – as the enterprise began to grow;
- largely as a result of the financial crisis of 2008, that traditional role has all but evaporated;
- indeed, market researchers BDRC Continental surveyed small business owners who recently sought the help of their high street bank and discovered that nearly a half of them were sufficiently discouraged from seeking a loan or overdraft that they did not even bother to apply;
- depending on the assessed strength and commercial viability of your business plan, funding may also be sought from independent investors;
- these may be so-called business angels who are prepared to invest in your business or venture capitalists who may identify an especially strong business case in your proposed startup or expansion;
- it is important to recognise that investment from such sources is generally made on an equity basis – funding is provided in return for a share in the ownership of your company;
- in any event, any such investor is likely to require that the risks faced by your ownership of any premises and the liabilities attached to your business activities are adequately covered by commercial business insurance – of the type we arrange here at UKinsuranceNET;
Alternative sources of funding
- in response to the apparent retreat from this market by many high street banks and because of the demands likely to be made by independent investors, a number of alternative sources have been developed;
- one of these is called crowdfunding and involves investment in your enterprise by a host of individuals in return for a share in your profits or some alternative reward;
- crowdfunding is typically arranged through internet-based agents, who take a commission on the funds raised;
- a further alternative is called peer to peer lending, where a number of – generally small – individual investors lend funds to your enterprise on the understanding that these will be repaid within an agreed period of time;
- the official government website offers links to helplines and directories offering regional business support;
- its practical advice on sources of funding for businesses is generally directed towards those thinking of starting up their own business.
Raising the necessary fund to start up or to expand your business may be a daunting prospect. However, there are a number of potential sources which you may wish to investigate and explore.