Why small businesses need to unlock funding for growth

By Stephen Sacks, founder of Funding Nav and author of Reboot your Business

According to Bloomberg, 80% of businesses fail within the first five years and of the 20% still standing, 80% of those statistically will fail in a further five years. We often see start-ups winning rounds of funding, but growth seems to slow down once they reach the development capital stage, as business owners struggle to raise capital to fund business growth in today’s tough market.

Access to funds for small businesses and start-ups is a true catalyst for growth and success. Supporting growth of SMEs is essential for the economy of the country in the pursuit of innovation and progress. Particularly in the run-up to and post Brexit, according to government figures, SMEs combined turnover constitutes almost half (47%) of private sector turnover in the UK, reaching an annual total of £1.8 trillion – making funding crucial.

Many entrepreneurs and small businesses are completely unaware of the sources of cash as well as other less conventional funding methods available to them. For small businesses to be successful, it is important that they apply for right type of funding at the right time, as speed of funding has been identified as integral to achieving this growth. Despite this, many small business owners are yet to take advantage of the funding available to them.

Unlike larger companies that have a whole department dedicated to finance, most small businesses won’t have such resource, meaning owners will need to add fundraising to their list of skills. This often leaves many small business owners unsure of which funding they are eligible for or where they should even apply for the funds they want.

There are a huge number of options available to small businesses in the UK, from Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS), very advanced crowdfunding and angel networks, low rates of corporate tax, R&D tax credits and entrepreneur’s relief in the UK. While having so many options is great, this adds yet another layer of confusion in terms of understanding which is best for your individual business needs and objectives.

This is why I have briefly outlined the advantages of different types of free cash sources and equity available to UK small business to help understand the best option to help fund growth:

  • The UK is one of the best places in the world for equity funding. Tax incentives such as SEIS and EIS are the government’s tax incentives to UK income tax payers to try to level the playing field between the relatively high risks of investing in the shares of unlisted small companies.
  • Often forgotten are R&D tax credits. The government are keen on paying out on R&D tax credits if there is substantial proof of research, development and innovation.
  • Crowdfunding, which also offers an excellent route to raising the capital. As the crowd will help sense-check ideas before you spend money, the marketing of shares will raise your company’s profile and it helps achieve a higher valuation with a crowd of shareholders than with a single financial investor.
  • Angel networks, which are a more sophisticated version of the crowdfunding platforms – angels start at about £25k upwards.
  • There is a comprehensive list of what funds are currently available, many new ones open and many closed. My latest book, “Reboot Your Business” details the 140 different funds available for UK-based SMEs.

Many small businesses struggle to find the funding they need to grow. It is important that they are equipped with the knowledge and tools to succeed. As the level of competition in the market increases and as Brexit looms, funding options have never been as important as they are now/