What are the types of funding for my business?
It’s not an uncommon occurrence for businesses to find themselves looking for outside funding.
It could be because you’re just starting out on your business venture, or you’re looking to expand and develop your services further. You could even need some extra money to get you through a quiet patch. It happens.
Either way, there are a few ways you can raise the capital you need to bolster your business. Here are some of the different types of funding you should consider.
In recent years, a popular way for businesses to raise money to hit their development goals has been by appealing to the masses.
Crowdfunding platforms allow you to create and post an online campaign, detailing what you’re raising the money for and exactly how much you need to get the ball rolling.
For example, the home fitness company Peloton began a Kickstarter campaign in 2013 and received funding of $307,332 from just 297 backers. Now the company has a market cap of over $2.5 billion.
Many businesses offer something in return for investment, usually depending on the size of the donation. During its Kickstarter, Peloton gave investors who donated $10,000 a bike, accessories and a trip to New York to meet the team.
Crowdfunding is a great way to raise money for your goals with the added bonus of not incurring interest on the money received as you would with a loan. The challenge of a crowdfunding campaign is the uncertainty of hitting your financial targets as you’re relying on the generosity of strangers as well as the strength of your pitch. You will also be giving equity away in your businesses in exchange for the capital raised.
One of the more traditional approaches to raising capital for your business is through an investor.
Investors can take many different shapes and sizes depending on the stage you’re at with your business. For high-growth startups, venture capital (VC) firms may be the way forward, but these are usually for businesses which have gone through several rounds of funding previously.
A VC might also expect a much larger share of the business in return for their investment.
Alternatively, you could consider approaching an angel investor. These types of investors are usually high-net-worth individuals looking to invest in smaller businesses at an early stage.
Similar to VCs, investors will want a share of the business once everything is off the ground and running. To secure investment, you’ll need to have a strong pitch and get the investor to believe in the company. At the end of the day, they don’t want to just throw their money away.
Before approaching an investor, you’ll want to make sure you have a robust business plan put together with financial projections, market analysis and cashflow statements. This will prove to any investor that you know your business and how to break into the market.
Borrowing money for your business can be an efficient way to get the funding you need. You’ll need to apply with your chosen bank, have your business plan prepared and pitch it to them as you would an investor.
The main downside to taking out a loan is the pressure of paying it back. Any loan you take out with a bank will have a long-term effect on your business’s cashflow.
Although you will have the money to hand, you’ll have to remember that your repayments must be made on time with added interest. Taking out a loan is never a decision to take lightly.
Grants and tax relief
The Government has a number of grants and tax reliefs to encourage smaller businesses to grow across the country.
Two examples of tax relief available for investment into SMEs are the seed enterprise investment scheme (SEIS) and the enterprise investment scheme (EIS).
However, there are strict conditions on your business’s eligibility, so in order for the tax reliefs to be received, you must stick to the guidelines. Any money received must also be spent within the three years of investment.
Helping you hit your targets
Team SAS specialises in working with smaller and developing businesses, supporting them to raise capital and identifying sources of investment. Our finance outsourcing services provide a useful support for fast-growth startups who need an interim solution or virtual CFO services.
If you’d like to discuss your business then please Get in touch. As part of our commitment to SMEs we are part of a trusted business advice service. The ICAEW Business Advice Service (BAS) connects owners of small and medium-sized businesses with ICAEW regulated firms who will provide a free initial consultation, without obligation.
A wider range of resources and insight on financial outsourcing, advisory services and more can be found on the Resources section of our website.
Use of this guidance is for reference only. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.