Finance and Funding
Choosing the right streams of finance and funding for your business can allow
you to operate your business, successfully in a range of different market
conditions and circumstances. Getting the choice wrong can often spell
disaster for companies, especially in the early stages of growth.
Services
Gateway for Business advisers will help you identify the best source of finance
for your company. Whether it be helping you to organise an overdraft
facility or identifying potential grants that you can apply for, Gateway for
Business Advisers will guide and help you through the entire process.
Our advisers can also help you in meeting the required criteria to access the
necessary finance. This can be achieved by helping your organisation to
create an accurate business plan or helping you put your case to an external
grants board.
Information
Types of Finance
Loans
Overdraft
Grants and Awards
Private Equity
Venture Capital
Business Angel
Credit Cards
The UK Government
Types of Finance
Loans
Loan finance is a type of debt finance which you borrow over an agreed time
period and after this time period you give the original amount together with
interest to the lender. The lender could be friends, bank, business
angels, investors, in brief anyone who lends you the money to finance the
business.
There are two types of loans: commercial loans, which are borrowed from banks or
building societies, and non-commercial or 'soft' loans, which are schemes
managed by enterprise or local development agencies.
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Overdraft
Debt finance can be in the form of an overdraft, which is when your bank agrees
to let you withdraw more money than you actually have in your account. Your
bank will set a maximum level of overdraft. You only have to pay interest
on the amount you are overdrawn, so overdrafts can be a good option if you only
need small amounts of extra cash regularly. However, the interest you pay is
often higher than the rate for a loan.
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Grants and Awards
Grants are sums of money given to an organisation in order to fund a particular
purpose. They tend to be available only in certain regions or for certain
business sectors. The type of grant available can vary across business
areas. However, typically, grants can be divided into capital grants
(machinery, furniture, IT equipment, etc) or revenue grants (wages, training,
software, etc).
Your chances of successfully applying for this type of financial support will
depend largely on how well your business or project fits the profile of a
particular grant funding scheme.
The Government, European Union (EU) and many local authorities provide grants to
encourage small firms. There are also specific awards schemes for particular
areas, such as the Shell Live WIRE scheme for young entrepreneurs.
Gateway for Business will help you access agencies that can search for any
grant funding available that meets your needs.
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Private Equity
Private Equity is money invested into your business by a third party. This may
be someone you know, such as a member of your family, a friend or personal
sponsor, or may be provided by venture capitalists or business angels (detail
below).
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Venture Capital
Venture capital is a means of financing a business where a portion of your
firm's share capital - or equity - is sold in return for a major investment in
the enterprise. In this instance some measure of control over your business has
to be conceded to the new shareholder, but the amount of finance gained can,
potentially, be very large.
Most venture capitalists assist only established businesses or those looking to
raise sums of over £250,000.
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Business Angel
‘Business Angels’ are private investors who look for opportunities to put money
into new or growing businesses in the hope of making a good return.
Most regions of the UK now have business angel matching services, which
encourage local investment and mentoring on a smaller scale. The
Government-sponsored British Business Angels Association (www.bbaa.org.uk)
matches business angels with small businesses requiring equity finance of
between £20,000 and £400,000.
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Credit Cards
In recent years there has been an increasing tendency for entrepreneurs to
finance their new businesses through the use of credit cards, encouraged by a
growing number of cheap deals, such as introductory interest-free offers. While
many credit card companies discourage the use of personal credit cards for
business purposes, there are now a number of credit card offers specifically
targeted at new business owners.
While using a credit card can help a business to raise initial low levels of
finance, it may not be the best financial decision in the long term. Although
initial interest rates may be attractive, the costs of long-term credit card
rates are usually relatively high.
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The UK Government
The Government operates a variety of initiatives through its different
departments, offering help to businesses in such areas as start up, technology,
research and development, and exporting. For example, the Department of Trade
and Industry (DTI) runs the Small Firms Loan Guarantee (SFLG) scheme,
which provides guarantees to approved lenders for loans for start ups and young
businesses that have problems accessing finance. Government schemes of
this nature can vary and change with time. A good place to begin
investigating if there is anything available to suit your needs is:
http://www.direct.gov.uk/.
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