The stringent lending protocols put in place by UK banks has made it difficult for start-ups and established entrepreneurs to finance business growth.
Small businesses have been hit the hardest. It is estimated that around 80% of bank loan applications submitted by SME’s will be declined. However, some banks have relaxed their stance in recent years.
Fortunately, bank loans are not the only lending channel to raise funding. Several government-backed schemes could provide an opportunity and are not as high-risk.
There are also modern funding platforms that are proving to present a good option. However, because online lending platforms are a relatively new concept, equity investments to raise capital could present greater risks.
A start-up loan involves receiving a bulk sum of money and paying back manageable portions in monthly instalments. The repayable amount is agreed prior to confirming the loan and includes built-in interest paid to the lender.
The UK government provides a gateway for start-up entrepreneurs to access unsecured business loans and at a relatively low interest rate a year. Loan amounts typically range between £500 to £25,000, and you are provided with free support and guidance to write a business plan.
Not every application will qualify. The basic requirements for approval are you must live in the UK, aged over 18 and have a business that has not been fully trading for more than two years.
The British Business Bank
Business owners that have been fully trading for over two years should try the British Business Bank. This is another government-backed scheme which aims to make finance markets work better for small business in the UK.
The British Business Bank could prove to be an invaluable channel for entrepreneurs. They work with over 130 partners to provide entrepreneurs with access to a wider supply of finance options and create customised funding plans that suit your needs.
An increase in the number of Angel Investors has made this lending channel one of the easiest ways for entrepreneurs to source financing. Business angels can be an investor group, private companies or wealthy individuals that want to back your business idea and provide financial support.
That said, the disadvantages are a loss of long-term profits for the owner and, potentially, a complete loss of control as the owner depending on the number of shares you need to sell to raise sufficient funding. Additionally getting advanced assurance for the Seed Enterprise Investment Scheme or the Enterprise Investment Scheme will offer your investors access to tax relief, making you a more attractive investment.
Crowdfunding has been steadily growing in popularity over the last decade. The concept offers promising benefits to both entrepreneurs and a pool of investors. One of the advantages of crowdfunding is you build a community to champion your business at the early stages of development.
That said, crowdfunding is not easy. There are more risks to investors than to entrepreneurs and getting backers on-board can take a lot of effort. Selling a business idea is often the hardest challenge for entrepreneurs, so you might want to seek advice from a professional business writer.
Of course, if you are 100% confident you have a business concept that promises to be a guaranteed success, crowdfunding could be your best option. Even if you’re not 100% sure, there’s no harm in trying.
Before you enter into a contract to secure a business financing, it is advisable to familiarise yourself with lending and secured finance laws in the UK. If you do choose to use one of the least tested paths, it is advisable to seek legal advice first.