Small business funding tips that actually work
The age of the internet has given rise to a vast range of start up funding and grant options for small business owners that are often far more profitable, efficient and streamlined than the old-fashioned routes of traditional bank loans, venture capital options or simply asking relatives and friends for funds.
If you’re an SME entrepreneur seeking funds for your next venture, we recommend one of the three excellent choices outlined below.
How to Get Funding for Small Businesses in the UK
Peer to peer lending
Peer to peer lending is a smart option for funding your SME, especially for those seeking a favourable alternative to traditional banking who do not wish to bother their friends or family with funding requests.
Peer to peer lending platforms are a bit like online dating sites for businesses. They provide potential investors with funding opportunities by uniting them with those seeking business loans. Since there are no traditional financial institutions to act as middlemen, peer to peer lending sidesteps the overheads associated with old-fashioned banking and both lenders and borrowers often reap the rewards of more generous interest rates.*
Most peer to peer lending platforms offer easy online applications and will handle your credit check for you. Once you’ve been approved, you’ll be matched with a lender (or several lenders) who would like to provide funds, which you can then accept or decline. Your chosen platform will act as an intermediary between you and your lenders so that you don’t need to deal directly with any third parties. Once the loan has been given to you, you can make your repayments through the platform, which will reimburse the lenders for you.
Peer to peer lending platforms are becoming increasingly popular to investors since they offer these lenders IF-ISAs, which allow them to make tax-free investments. Unlike an ordinary ISA, this means that any interest earned through an IF-ISA will not be taxed or count towards the owner’s Personal Savings Allowance. This offers investors a good way to increase their overall investments and maximise their returns.*
*Capital is at risk.
Angel investors
The term ‘angel investors’ refers to affluent individuals (or groups of individuals who have pooled their resources) who offer loans or grants in exchange for equity in your business or convertible debt, much like on Dragon’s Den. Investments from angel investors typically range from £50,000 up to £500,000 or more, and so are more suitable for those seeking substantial funding from a single source.
With a bit of online research, it is usually fairly easy to find a local angel investor online who is appropriate for your needs, but be warned that such investors are usually very serious, have high expectations and may look to meddle with your business model in order to secure solid results.
While many angel investors have strong business acumen and may be a welcome partner for some, those seeking to retain full control of their business are probably better off with a peer to peer lending platform.
Crowdfunding
Online crowdfunding is a simple and effective option for small business enterprises seeking smaller investments or grants on their own terms. Essentially a modern and more professional equivalent of requesting funds and loans through family and friends, crowdfunding platforms allow small businesses to reach a large audience of potential investors who can loan or even donate as much as they like to the enterprise.
Crowdfunding platforms are usually best for those seeking start up grants and loans for their small business. They allow you to explain your business idea to the public, set a funding target and consolidate your ambitions and brand image on a single website, making it easy to receive funds from dozens of sources and save you time and effort in administrative labour. With crowdfunding now well-established as an effective funding route for SMEs, many serious business investors and donors also routinely keep an eye on the main crowdfunding sites.
Whether the loan your business requires to achieve success is small or large, these three options for funding are modern and pragmatic, and the least time-consuming options out there. Peer to peer lending platforms are the most flexible and efficient, and we wouldn’t be surprised if such platforms come to replace traditional funding formats for small businesses in the coming years.
