Innovative ways to fund your business

Banking Mar 1, 2012

The lasting economic downturn has made it more difficult for small businesses to find the cash required to grow their business. Banks constrained by shrinking profits and increasingly stringent capital requirements have shun from lending to SMEs. And lending targets or the arrival of new entrants on the market will hardly change that.

While the banks have continued to lend through overdrafts and credit cards at extortionate rates, there are other options now available for the creative small business...

  • The Enterprise Finance Guarantee (EFG) -- it is a loan guarantee scheme intended to facilitate additional bank lending to viable SMEs with insufficient or no security with which to secure a normal commercial loan. There is an additional cost of 2% per annum but it can prove a great option when the business has no assets to secure a loan against. Just ask your bank about their EFG options.
  • Regional Growth Fund (RGF) -- it is a £2.4bn fund that businesses across England can apply to for grants and loans from 2011 to 2015. It supports projects and programmes that lever private sector investment creating economic growth and sustainable employment. More info and details on how to apply can be found at the BIS web site.
  • P2P Lending -- Funding Circle or Zopa are great examples of Peer 2 Peer lending where investors lend directly to borrowers. For a comprehensive list of the UK players you should check this site. The platform provided by the technology vendor allows loans to be split into small parts and bid upon by investors thereby reducing the risk. Investors can choose their clients or leave it to the system to allocate their funds based on a given risk profile. Rates for good credit rating borrowers is around 8%, way below the 25% an unsecure loan would fetch when obtained through overdraft or credit card borrowing.
  • P2P Equity -- if you are interested in equity instead of debt, platforms such as Crowdcube or Seedr allow you to raise money directly with investors as well. Worth looking into if you are not afraid of dilution.
  • Reward based crowdfunding -- while P2P lending or equity raising is sometimes referred as crowdfunding, the original concept started by Kickstarter in the US and now also available in the UK is an original way to raise money. You get funding for a project in exchange for future ware. If successful, not only do you get the money, but also free clients and market research!
  • Online brokers -- extensions to the offline world making it easier to find the right funding resource, one of them being none of these options will replace the banks (yet), it's good to know that there are options out there for those willing to experiment.


Franck Sidon

With over 15 years of experience as a Managing Director at TaxAssist Accountants, I have helped thousands of businesses and individuals achieve their financial goals and optimize their tax efficiency.