Where to find funding for your young business

There are plenty of options other than banks, says Rafferty Gifford of Liberis

The biggest challenge young businesses face is getting the funding they need to grow. Whether they want to grow through renovation, launching a new product, marketing or hiring new staff, this money can be difficult to come by.

Young businesses have the disadvantage of having little to no financial history, which can make applications for funding easy to disregard by traditional loan providers.

Luckily, not all hope is lost. There are many different streams of funding young business owners can explore that will help them receive the finances to take their business to the next level.

Check if you’re eligible for grants

Starting out as a new business can be difficult financially – you have yet to establish a large clientele, but overheads and materials are expenditure regardless. If you are looking to avoid borrowing from a bank and have already dipped into personal savings, then it may be worth looking into grants.

There are several grants available you could be eligible for that would ease financial pressure, without the worry of repayment. These range in size from £500 to £500,000, with the criteria for each differing and some exclusive to certain areas.

National grants include:

  • Princes Trust Grant: The Prince’s trust has provided financial assistance to young entrepreneurs since 1976. It offers an Enterprise Program that provides grants and mentors to young individuals to help them start their business successfully. To apply you are required to fill out an online application form. You must be aged between 18-30 years old to apply for the Prince’s Trust Grants. For individual applicants, the grant offered is £1,500 and a business group applying could receive a grant up to £3,000.
  • Heritage Lottery Fund Start-up Grants: Heritage Lottery grants are exclusively offered to individuals running a non-profit organisation or entrepreneurs who are looking to start a new business. The applications for the grants remain open throughout the year, meaning you can apply at any time, but bear in mind that it can take up to eight months to process the application. The amount given can vary depending on the state of your business.
  • Small Business Grants: Small Business Grants is a monthly competition that sees small businesses in the UK applying to win a £5,000 grant. Every month, a shortlist of leading entries will be sent to a panel of independent judges who decide on a winner, considering factors such as: turnover growth, innovation, aspiration, key projects completed, contracts won, and partnerships forged.

Alternative business loans

If your business is not eligible for grants, the banks are not your only option. Loans from banks can be difficult to obtain for small businesses, often needing some form of collateral, such as a property, as security against your loan.

The repayments for traditional loans are fixed, meaning that during the off-peak seasons when there is a decrease in cash flow, small business owners often struggle to keep up with the fixed sum.

Instead, young businesses should look to alternative finance providers. For example, Liberis provide a cash advance that is paid back based on a percentage of a business’s monthly credit and debit card transactions. This means that if a business has a particularly slow month, its repayments will adjust accordingly to match their takings.

Businesses can borrow between £2,500 and £300,000, but there are some criteria to be accepted for this type of funding, for example you need to have been trading for over four months and take at least £2,500 in customer card transactions each month.

Go to your audience

Another alternative to bank loans and a viable option for a young, innovative business is crowdfunding (also referred to as crowdsourcing). Crowdfunding works by businesses asking their target audience to contribute small amounts of money towards their idea or product. There are a few different types of crowdfunding that your business can consider.

With reward crowdfunding these people are usually incentivised to contribute through the business offering rewards based on how much you donate. For example, a small amount may just get a personalised thank you, a slightly larger amount gives them a discount code, and a substantial amount may earn contributors a gift.

Reward crowdfunding isn’t the only crowdfunding option: donation crowdfunding offers nothing in return and contributors simply send money to support your business idea.

Equity crowdfunding is another funding option: people invest in the opportunity in exchange for a share or small stake in your business or project.

There are specific websites that offer to collect the money from crowdfunding campaigns, such as GoFundMe, making it easy for young businesses to get all the money from one place.

Find your business angel

With crowdfunding you have investment coming in from all types of individuals. In contrast, business angels are wealthy individuals who provide capital in return for a proportion of the company equity. This line of funding is great for young businesses that require a large amount of money for a project or capital.

Unlike crowdfunding – where the crowd has a hands-off approach to the business in exchange for their money – business angels want more involvement in the business to ensure their investment is being used wisely. This can benefit the business owner as these investors usually have a business mind and can provide skills to strengthen the marketing and financial side of the business.

So, don’t fret. There is no need to sheepishly face the banks when you are looking to fund your next big step as a business. There are plenty of alternative funding options out there.