The small businesses of today exist in a new financial landscape that forces creative thinking when it comes to funding. Traditionally, SMEs have been the key driver for economic recovery when it comes to growth, but growth activities require cash and cash can be hard to come by. Small businesses have a variety of different sources when it comes to securing investment. Most companies will piece together their funding from multiple sources over time. No single source of funding is easier to come by than the other. This will depend upon how you present the company’s projections in your business plan and how well you can sell yourself to potential financial partners.
If you’re a start-up looking for initial capital or a SME looking for funding to support growth, you have to remain adaptable and stay positive in your efforts. Here are four possible funding solutions to help support your company’s growth:
- Small Business Loans
High street banks and traditional lenders can be very strict with the approval of loans unless you have excellent credit and/or a flawless business plan. But if you have neither of those, could you possibly consider taking this funding route? It’s important to do your research before giving up at the first hurdle. To prove to the banks and lenders that you’re serious about starting up or pursuing your company’s growth, you have to present a detailed business plan, financial projections that clearly show signs of profit upturn and that you’re willing to invest some of your own money into the fund to help demonstrate your commitment and notion of shared risk into the venture.
- Friends & Family
Approaching your friends and family for investment is not unheard of, in fact it’s one the more popular and effective ways of rounding up some introductory capital for your business idea or growth vision. The people you hold most dear to you are going to be more approachable, acceptable and understanding around your request for funding. They will also be the best audience to explain your business plan to as they will believe not only in your vision, but your ability to make it a reality.
However, one of the potential drawbacks is that you would potentially risk personal relationships should the business venture fall through and you fail to meet your original repayment agreement structure. To maintain a strong relationship, treat this method of funding as a high interest loan for up to year and try to borrow just enough to launch your business idea or growth plan. You will want to avoid expensive legal fees, but it’s wise that all parties involved seek out rational legal advice, to avoid any potential potholes that could cost all parties much more, further down the road.
- Angel Investors
Television’s favourite dragons and angels from the den often claim that they’re able to bring a lot more to the businesses they support than simply injecting cash into the venture. Most angel investors have the necessary capital to spend on entrepreneurial start-ups and growth strategies because of their successful history of running businesses themselves. Angels are also willing to share their experiences of starting and operating a business to help give you a good understanding of the challenges you may face whilst building up a company. This is what sets them apart from standard lending institutions.
However, just because this investor has decided to inject cash into your business, doesn’t necessarily make them the right financial partner for the long run. As the business owner, you have to keep in mind that when you’re lent money from an angel, they will own a portion of your business and you’ll have a responsibility to act in the best interests of the business and the shareholders. If you choose to go down this funding route, remember that the devil is in the detail and that you must always refer back to your business plan, be clear, back up your assessment with your financial projections and build a relationship based on mutual understanding and trust.
A large number of entrepreneurs and business owners have come to realise that they may have to self-fund their business ventures and plans for growth for a considerable amount of time until their more long term and formal funding opportunities become realistic. You can self fund through a number of different ways including accessing your personal savings account, to applying for a company credit card. If you truly believe that your business plan will be successful, you should have no problem with investing your own cash into the venture. One of the main perks of going it alone is that you don’t have to justify any of your business spending to a board or pay back any investors, which allows full control of the company. The other benefit is that when it does come round to presenting your business plan to an angel investor, they will be more comfortable knowing that you have a large stake in the business and will take you more seriously.
If you’re interested in finding out more around how EFM Growth can help guide you through the funding maze, speak to our team of experienced Growth Partners. Get in touch today through email or call 01582 516300.