Start Up Finance
This is a guest post from The Peloton Accountancy who offer accountancy and marketing services to small businesses.
Raising money for a creative start up can be very difficult, particularly if it is your first time. However, it can be done. Take a look at our tips and advice to help you on your way.
Whatever your source of funding, make sure you take sound financial advice. An accountant can advise you about the tax breaks that are available for creative start ups, such as the Seed Enterprise Investment Scheme. Our firm, The Peloton Accountancy, is a firm that specialises in helping start ups to maximise their investments. We can also help with bookkeeping, tax planning, managing accounts, tax returns and identifying your key performance indicators.
There are a number of small business options you can consider, such as grants, loans from banks or family, or outside investment. But before you begin to seek funding, you must make sure you are really passionate about your business proposal. Make sure you can explain coherently why you want a start up. It is also important to consider who your audience is and the good will come from all the hard work you about to embark on. You need to think about such things because it is likely your investors will want to know too. Start with a trial if at all possible and collect as much feedback as possible.
If you are unable to get a loan from your high street bank, don’t despair. There are many government schemes available that may well be able to help you with your start up. For example, Enterprise Finance Guarantee (EFG) is available until the end of this tax year and is a loan guarantee scheme that allows banks to lend to small businesses that cannot provide the security necessary for a normal loan. The government guarantees 75 per cent of the bank’s loan to you.
Another option to consider is Start Up Loans, a government funded loan available to small businesses that are unable attract funding from high street banks. Loans are available of up to £25,000, repayable over a five year period and include the support of a business mentor.
If your business is in export, you might also like to consider UK Export Finance (UKEF) which will back export loans and cut the interest you pay by a third as well as providing support, guarantees and insurance.
Also available is the Business Finance Partnerships scheme. This enables non-traditional lenders and fund managers to offer loans to small businesses such as start ups and is backed by a government investment of £1.2 billion.
Local councils are another potential source of financial support. Many have funding available for small and medium sized businesses within their area. Many charitable trusts are also keen to support start ups: the Prince’s Trust Enterprise Programme, for example.
If you are comfortable promoting your idea to a large audience, crowdfunding might be right for you. It is a relatively new way to raise money for small, creative businesses. Members of the public club together to raise money for you, usually investing relatively modest amounts from as little to £10; however, larger investments are not unheard of. The idea is that a lot of people making these small investments adds up to a sizable cumulative figure. There are three different methods of crowdfunding:
Donation crowdfunding is where people invest in your idea simply because they like it and believe it might work.
Debt crowdfunding, also known as peer to peer lending, involves members of the public lending a small business money, which is then paid back with interest. This method avoids having to use banks. Investors also get their money back plus interest and know that they have contributed to something they believe in.
Equity crowdfunding, meanwhile, is where investors are given equity such as shares in your company.
If you decide that crowdfunding is something you would like to explore further, be prepared to answer lots of questions and probably the same questions over and over again. It is also advisable to give your potential investors the chance to meet you early on before they get distracted by other projects.
Social Enterprise Funding
Other possibilities for funding include social enterprise models such as Social Enterprise London and UNLtd, where you generate some income yourself and get some funding. UNLtd also offer grant funding.
When selecting a funding option for you small business is it vital to get the balance right. Tracking down funding is essential, of course, however, it is also of paramount importance not to lose focus on the other key areas of your business: your product and your customer base.
Note from Fiona
Don't forget that you do not have to limit yourself to just one option to fund your whole business start up. It may be that you need to look at a combination of funding sources to raise the capital you need. I set The Sewing Directory up with a combination of a grant and loan from The Prince's Trust (around 50% of my start up costs), a private investor (25%) and personal funds (25%). But do remember most investors or banks will want to be notified of any other funding sources your are using.