FSB North East

 

 

One of the most frequent requests we get at the Federation of Small Businesses is: Where can I get some money from to grow my business?

Despite the best intentions the numerous schemes designed by the Government to get banks lending haven’t worked for the majority of small and micro businesses. Anyone remember Project Merlin or the National Loan Guarantee Scheme?

With this clear reticence from the banks to lend to small and micro businesses the focus has shifted on some of the alternatives that are available. Over the past year there has been a massive growth in the alternative sources of finance that are available including crowdfunding, business angel investment and peer to peer lending.

So what are these and how do they work?…

Crowdfunding

Crowdfunding allows businesses to raise money from a number of small investors for a particular product or service. The aim is to open up investment opportunities to everyone and investments can start as low as £10.

Businesses pitch their idea on an internet platform like Crowdcube, Growthfunders or Kickstarter outlining their pitch for investment and how much money is being asked for.

Businesses generally have up to 60 days to raise the money they are looking for and where successful a small commission is taken by the internet platform. When a target is not reached the business receives no investment, the potential investors aren’t charged and no commission is taken.

Angel Investment

Angel investment usually comes from wealthy individuals or a group of wealthy individuals. Angels usually provide investment in for a stake in the business and are looking for a good return on the investment.

Pitching for angel investment is similar to that on Dragons Den where businesses outline what they’re looking for and how much of the business they are willing to give.

As angels are individuals it is crucial that background research is done on what they typically invest in and how they can add value to grow the business.

In the North East it is worth checking out the North East Business Angels for more information.

Peer to peer lending

Peer to peer lending allows businesses to find low cost loans to grow their business. The way it works is business get the funding from one individual or a number of individuals. The business looks at who is offering the lowest interest rate and accepts that offer.

With no middle men or lengthy delays in applications individuals get better returns and businesses get lower cost loans.

There are checks made on both the individuals that want to lend and on the businesses that need the lending.

Some of the most popular platforms that have risen in the past year are Zopa, Funding Circle and RateSetter.

Seeking any finance is not easy and the new alternative providers should not be seen as a panacea to all ills. Businesses still need to be investment ready and be able to demonstrate how they will make a return on the investment.

Good luck on getting the investment and finance you need to grow your business.