By Emma Lewis, Myriad Associates
A recent study by UHY showed there were 726,000 new businesses created in the UK in 2020, up from just over 636,000 in 2019. Lured by the chance for freedom and flexibility, thousands of people have recently quit their 9 to 5 in favour of going it alone.
But dreaming of starting your own business and actually doing it are two very difficult things, and funding it can be tough. Luckily, the UK government has long encouraged entrepreneurship with a huge number of public funding options specifically for this purpose. And of course there are the private routes you can go down too, such as angel investment. But how do you know what’s available and which ones would suit?
Here’s a quick rundown of popular funding solutions to help you decide.
A mainstay for entrepreneurs looking to finance their latest venture, startup loans amongst people with a good credit history and low debt-to-credit ratio are very popular. However, even once your application is successful they can still take several weeks to hit your bank account which isn’t always ideal. On top of that, in the years since the financial crash (and of course since the pandemic) lenders have tightened up their lending criteria considerably. This can mean that unless you’re financially whiter than white, you may be rejected – especially if the amount you’re looking for is noticeably large.
Nevertheless, there are deals to be had if you shop around. A good place to start for government startup loans is the Gov.uk website. A comparison site like Money.co.uk may also be worth looking at if you’re interested in a bank loan for your business.
Grants, of course, don’t need to be paid back which makes them the holy grail of startup funding. There’s a vast array of business grants out there – local, national or international – and each will have various terms and conditions.
However, grants don’t appear instantly and making an application can take some time to get right. This means they’re not always ideal for rectifying urgent cash flow issues.
Grants offered by the UK government or the EU will generally be run ‘competition style’ with only the most high quality, persuasive applications winning the money. Competition is fierce but with tens of thousands of pounds potentially at stake such grants are well worth exploring.
The Finance and support for your business page of the Gov.uk website is a good place to start.
Venture capital and angel investors
Again, these are popular routes to take for startups that can be scaled up fast under the experienced mentorship of top players in the industry.
Generally angel investors come in on the ground floor and work on smaller startups whereas venture capitalists are more interested in established companies with their sights set on expansion. Therefore, with venture capitalists there are usually far larger sums of money involved.
Working with angel investors and venture capitalists is about far more than simply a financial boost. These kinds of backing also bring long-term expertise and mentorship that’s incredibly valuable in helping the company thrive. Again, however, competition is usually very fierce, and entrepreneurs may not get the terms they want in a deal. It will need to be a two-way street where both parties benefit, meaning there may well be some negotiation.
Crowdfunding and peer-to-peer finance
One of the newer kids on the block, crowdfunding and peer-to-peer finance are two areas of business finance that are on the grow. Easy to set up and manage, they can mean large amount of funding can be raised quickly whilst also boosting brand awareness.Popular providers include Zopa, RateSetter and Funding Circle.
Where a company is looking to develop a new product, service or process,R&D grants can offer a huge leg up.One of many government incentives to innovate, there’sa number of regional and local bodies plus other organisations that support R&D as a whole.
The crucial thing is to understand which R&D grants are available and whether your business and project is eligible. You also need to thoroughly understand the application process to give your business the best chance of winning the funding. This is why many companies use the services of professional R&D consultants.
Getting innovative? There’s R&D Tax Credits too
Once your startup is starting to thrive, you’ll want to aid it’s long-term viability by growing it.The R&D Tax Credits scheme is therefore something no company will want to miss out on.
R&D Tax Credits are a government-backed tax incentive that can slash a company’s corporation tax bill. Even loss-making companies can get in on the action with a cash lump sum instead. In fact, SMEs can claim up to 33% of their qualifying research and development costs back – and even the smallest claims can be worth many thousands of pounds.
Like R&D grants however, the issue is that making an application can be very complex. You not only need to be clearexactly which R&D costs you can and can’t include, but they must be apportioned accurately too. Underclaiming is likely to mean leaving cash on the table for future R&D investment, whilst overclaiming, however innocently, can attract an HMRC enquiry. Again, this makes professional guidance in claiming R&D Tax Credits crucial.
Choosing start-up funding
Most small businesses go for a mixture of the above but deciding exactly which option best suits depends on your own circumstances as well as that of your business. But with the right research and professional advice you give your fledgling business the very best chance of success.