In todays climate SMEs need to look beyond the bank to find capital.

 Recent research from Barclays suggests entrepreneurs are undeterred by reports of an economic slowdown with an estimated 98,000 new businesses launching in the first three months of 2008, yet nearly 100,000 start-ups closed in the same period. With SMEs under so much pressure there is a high demand for capital injections to sustain growth.

There are many funding routes available in the UK but little is commonly known about alternative options. This lack of knowledge may lead many business owners to compromise their interests and end up with funding that hampers their growth strategy. It’s not a question of waiting for hand outs; entrepreneurs need to proactively search for funding options rather than relying on government to provide the answers.

The options are out there. You just need to find the right funding strategy for your venture.

D.I.Y

When starting up a business most entrepreneurs make a personal contribution to the finances. Few are lucky enough to have substantial spare cash to invest more at later stages, but if you haven’t done so already, putting your own cash in can encourage other investors.

Investing a significant chunk of your own money helps give future investors confidence by showing your faith in the company. In fact some commercial forms of funding will exclude you unless you make a sufficient personal commitment.

Family and friends

Around 90 per cent of business angel transactions in the UK fall into the category of family and friends investments. Funding from friends, relatives and associates can take many forms; it may be the issue of shares, possibly with Enterprise Investment Scheme (EIS) tax relief or a loan with or without interest.

EIS is one of the very few tax breaks still available to high net worth investors in the UK, so contact the Small Company Enterprise Centre (SCEC) of HM Revenue and Customs to find out if your company qualifies.

Angel investment

Business angels actively seek to make a direct investment in growing companies. They can be found through specialist networks or professional advisors, such as accounting firms. Angels invest for all kinds of reasons and have very different budgets, putting in as little as a few thousand pounds to over £100,000. Many angels are established business people who are looking to use their experience and contacts in a new opportunity and may wish to be actively involved in your business.

Corporate venturing

Corporate venturing is the process of two companies entering into a mutually beneficial partnership and the UK has become the European leader in this practise.

The larger company in the partnership will usually invest either money or goods and services into the smaller company in return for access to technology or skills. The most important form of corporate venturing for growing businesses is the direct approach, where large companies invest in organisations that have complimentary products or services to their own core activities.

AIM and PLUS Markets

The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange, allowing smaller companies to float shares with a more flexible regulatory system than the main market. AIM was launched in 1995 and has raised almost £24 billion for more than 2,200 companies.

PLUS Markets is the new stock exchange in London for small and mid-caps, where 7,500 UK and European Securities are now raising funds through public listings.

Speak to a specialist corporate stockbroker to find out if either of these options is suitable for you.
Search your region

Some regional funding organisations manage their own funds as well as providing support services. Organisations such as Finance South East specialise in the identification, funding and development of ambitious, high potential growth businesses. For example its £10 million Accelerator Fund mezzanine loan has had a major impact on the growth of SMEs in the South East of England. Successful applicants have seen turnover increase by around 30 per cent over the six month period from September 2007 to February 2008.

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