On the side of SMEs

Finding Funding for an SME Business

Where do you go for funding if you are a small business? Loans from the Bank are usually only possible if the company has been trading for over three years and you generally need capital or other security (like your own house) before they’ll consider lending. The old adage of 

“A banker is a fellow who lends you his umbrella when the sun is shining but wants it back the minute it begins to rain” is more than an adage, as anyone who’s tried to get a business loan will know.

So, what are other options are there for raising capital for your SME?

Government grants are a possibility yet, the process of finding funding this way is often very drawn out and difficult. The UK government is regulated by EU legislation, so there is a high level of bureaucracy and governments generally are happier lending to large public sector ventures, rather than the owner driven businesses that make up 95% of the UK workforce outside of the public sector.

There are sites that offer local grants to small businesses around the UK, including local councils and big companies, but the number of proposals and funding amounts are typically quite limited. 

Friends, family and crowd-funding are options, but these can have their own challenges, particularly if the business hits hard times. If you do go down this route however, we would strongly advocate that you have agreements in place with the funders that explicitly lay out what you will give them in the case of the business doing well and as importantly the business not doing well. There's nothing worse than falling out with investors due to a misunderstanding, particularly if they happen to be friends or family.

More common options for business funding are Angel Investors and Venture Capitalists, both of which will typically invest higher amounts than lenders. However, both Angel Investors and Venture Capitalists will want some control of your business and ‘guarantees’ or assurances of their return on investment in exchange for their money. But at the same time, they can offer additional experience to the management team, which could be that factor which allows your business to succeed in the first place. 

Remember, the investor is looking to make money just as you are, and so it will be a venture that both sides enter together as a partnership. This means that anyone who invests in a small business is likely to do as much as possible to ensure that they are making a sound investment. They will check your business plans thoroughly, and make sure that they themselves believe in your business idea and future plans. 

So where would you find suitable Angel Investors? Well a Google search will throw up a number of sites where Angels are part of their network and you would typically have the opportunity to ‘pitch’ your business directly into the site, along the lines of the TV programme ‘Dragon’s Den’.

We have many years of experience in helping with these types of challenges. Feel free to contact us to find out more.