16/09/2014

By Jim Duffy, Chief Executive Optimist, Entrepreneurial Spark

More and more ambitious entrepreneurs are starting out in business. From March 2013 to March 2014, the highest number of incorporations were registered in the UK since Companies House records began back in 1997 – 526,874 in total. Of course, these new businesses need funds behind them but what are the best options?

There are a number of routes fledgling businesses are taking to help them on their entrepreneurial journey.

Self-finance

Self-financing gives you greater control of your business, and if you choose to apply for outside financing in the future your own investment will demonstrate your commitment and faith in the business. Put your money where your mouth is and invest your own cash — if you wouldn’t invest in your own business then why would anyone else?

Bank loans

When getting a business off the ground or expanding an existing business, bank loans can offer a boost. Getting a loan isn’t as easy as it once was so you’ll need to have a solid business plan in place along with a good credit score.

Some entrepreneurs have used credit cards to help get their businesses off the ground; provided credit card debt doesn’t spiral out of control, this can be a viable solution for many new businesses.

Investors

Getting the right investors behind your company can help accelerate growth. Venture capital is financial capital provided to early-stage start-ups where the investor owns equity in the company and benefits from dividends and usually exiting at the end for a big profit. An angel investor is a high net worth individual who provides capital for a start-up in return for equity. Angels can receive tax breaks when they invest in new businesses, making it a win-win situation for both the start-up and its backer.

Syndicates allow investors to co-invest with others. This has benefits in that the lead investor can share his or her experience to help the other backers choose the best investments and start-ups get more capital from a bigger network of entrepreneurs. There are many other routes to investment.

Crowdfunding

Crowdfunding has grown massively in popularity recently. Online campaigns allow businesses to fund products, services and even things like films via crowdfunding campaigns.

Success stories include The Veronica Mars Movie which raised $5.7m from 91,585 backers in April 2013. Craft beer club Beer52 smashed its target on crowdfunding platform Angels Den, raising £100,000 in backing in return for equity and rewards including one backer who will receive free beer for life. Beehive management service Plan Bee lets communities, individuals and businesses enhance their sustainable responsibilities by providing a fully-managed beehive service. It raised over £105,000 on Crowdcube by offering various benefits to all levels of investment.

Of course not every campaign is received so well, with many failing to reach funding targets. Crowdfunding campaigns should tell the story of the product or service, why it came about and why you need funding. Have realistic goals in place and showcase your product using high-quality photos and an engaging campaign video to help boost your chances.

Grants

There are an array of grants and loans available to businesses. Sometimes, the advice and support offered by many of these is as, if not more important, than the money itself.

Scottish EDGE has just re-launched to provide financial support, master classes and mentoring to entrepreneurs. Scottish EDGE is a fund of over £5m supported by entrepreneur Sir Tom Hunter’s The Hunter Foundation, the Royal Bank of Scotland and the Scottish Government. Successful applicants receive up to £50,000, or £100,000 in exceptional cases. Half of this will be prize money and half will be a loan to be paid back to help other entrepreneurs.

Alongside this, mentoring and support from entrepreneurs and a range of public sector assistance will help grow businesses. Being a winner of Scottish EDGE also offers potential access to start-up accelerator Entrepreneurial Spark. By working together, Scottish EDGE and Entrepreneurial Spark hope to boost individual businesses and drive an entrepreneurial revolution in Scotland.

Invoice financing

Invoice financing is a flexible form of finance in that the amount a company can borrow increases as sales grow. An invoice financing company will lend a percentage of the value of each invoice that is issued before collecting the invoice, paying it back to the company and taking a fee which is usually a small percentage of each invoice. This gives companies access to finance, allowing them to complete orders before payment is received from the customer. Invoice financing is often easier to secure than a bank loan, helping start-ups get off the ground and build business sooner.

For entrepreneurs starting out in business, trying to secure finance can be a daunting prospect. Having a well-thought out business plan, determination and a willingness to work hard will stand you in good stead to securing finance, business support and mentoring. No matter what your business aspirations are, finance no longer needs to be a stumbling block.

Jim Duffy is the CEO of Entrepreneurial Spark, Scotland’s largest free start-up business incubator, which is open now for applications. Find out more here

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