Small Business Guide to Alternative Funding

It appears that banks are closing their doors to start-up businesses, but that shouldn’t deter entrepreneurs from seeking funding. In fact, there are more fundinMan holding empty walletg options open to start-ups than ever before, as new services are emerging to fill the gap.

Founder and Chief Executive of Blaze, Emily Brooke, has tried several different sources of funding for her business which provides innovative products for urban cyclists.

Early on in her start-up Brooke used Seedrs, an equity-based crowdfunding platform, and Kickstarter, where she achieved her target of £25,00 in just a few days. She chose the crowdfunding option for three reasons: “Firstly the proof of concept and the ability to validate the idea before speaking to distributors, retailers and manufacturers, secondly to get feedback from early adopters and thirdly to increase awareness of her business,” says Brooke.

Expert Input and Investment

Brooke also used business angels – affluent individuals who can offer support as well as funding – which she found to be a fairly easy process, as well as venture capitalists. She found that although the business angels provided individual support, they lacked the “deep pockets” that she might have needed down the line. Acquiring venture capital was process-intensive and a big decision to take on, but Brooke says it provided “incredibly valuable learning and validation of the business.”

Boundaries between the different funding routes are blurring as crowdfunding becomes mainstream and more traditional funding providers embrace this route. Crowd-based loan options are also rising in popularity. Peer-to-peer lending matches private investors or businesses with borrowers. There are two different types of P2P platforms: consumer lending, or business lending. For the borrower this can provide a rapid route to ready cash, while lenders can expect a return of around 6% on amounts lent.

Businesses accelerators can also be a good source of hands-on help. Rose Lewis, Co-founder of specialist B2B accelerator Collider, says: “The accelerator is an exciting funding route. Start-ups that apply to enter a programme receive investment, mentoring and all sorts of connections that will heavily increase their chances of success. There are a lot of programmes out there but the best are those with the biggest networks.”

The UK government has pledged to do more to help small businesses and offers a number of competitions, grants and schemes that start-ups can apply for, depending on their field and the current state of their venture.

For example, Angel CoFund is a £100m government fund that invests alongside business angels. It puts up amounts of £100,000 to £1m for SMBs with high growth potential, working with syndicates of experienced business angels that can help companies fulfil their potential.

Other Avenues

Government Grants: If you’re a technology company, the Technology Strategy Board, the Department of Energy and Climate Change or the Manufacturing Advisory Service may be of use. There is a competitive application process, but if you get a grant you could see up to 90% of your project funded. As it doesn’t dilute your equity, it is also a very efficient form of funding.

Competitions: There are several competitions and awards to apply for, often accompanied by no-strings-attached cash and a raft of public exposure. Shell Springboard has £330k up for grabs each year and PR support that can be instrumental in making a market aware of who you are and what you are doing.

Company Grants: If you are struggling to afford a special piece of hardware or desperate to get hold of the latest software, then check if the company in question runs a grant programme for small businesses. Often they have unbelievable deals to help start-ups get on their feet. Examples of this include Autodesk and National Instruments.

So don’t presume you’re fundless and friendless if the big banks turn you away. There are plenty of other avenues to explore.