All businesses need funding. No matter how good the product or service you offer is, it won’t be possible to get it off the ground without some initial investment. Acquiring funding can be a daunting thought for new businesses, with many unsure of where to start. Here are some of the funding opportunities that are available to startups and SMEs.
SEIS and EIS
The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are venture capital schemes offered by the government to qualifying businesses. Both schemes offer tax reliefs to individual investors who buy new shares in your company. These schemes are specifically tailored towards helping businesses grow, with EIS focused on businesses less than 7 years old, and SEIS focused on businesses that have been trading for less than 2 years.
The difference between the schemes is the size of the business they are aimed at helping. SEIS is only available to companies with gross assets of under £200,000 and who have fewer than 25 full-time equivalent employees. EIS is available to businesses with gross assets of no more than £15 million, and fewer than 250 full-time equivalent employees.
Start Up Loans
Start Up Loans is a government-backed scheme that helps to start or grow small businesses. Start Up Loans allows business owners to borrow up to £25,000, with a 6% p.a. fixed interest rate on a 1-5-year loan repayment term. There are also no setup or early repayment fees.
One of the benefits of Start Up Loans is that they also offer free mentoring to help you find your feet for the first 12 months after the loan has been received. They can also assist with business plans and cash flow forecasts, and loanees receive exclusive discounts on business products from huge providers such as O2 and Experian.
An angel investor or private investor is someone who will provide capital for a startup business, usually in exchange for an ownership equity stake in the business. Angel investors are usually individuals with a high net worth with excess funds available.
There are websites that aim to put startup companies in contact with angel investors, such as The UK Angel Investment Network, but they are also often found within the business owner’s network of contacts. Angel investors may be more willing to invest in businesses that other funding bodies view as too risky, but this depends entirely on the individual.
R&D tax credits
Research and development (R&D) tax credits are another government incentive designed to help businesses who are investing in innovation. HMRC’s criteria for what qualifies as innovation is helpfully broad – if your company develops new or enhances existing products, processes or services, you could be eligible for R&D tax credits. You can even claim for R&D credits on unsuccessful projects.
You can make a claim for R&D tax credits to receive either a cash payment and/or a reduction to your Corporation Tax. When making your first R&D claim, you can usually claim this tax relief for your last two completed accounting periods.
Crowdfunding sites such as GoFundMe and Kickstarter are a great way to get exposure for your business. Popular over the past decade, crowdfunding sites allow you to appeal directly to the public with your product or service, offering small rewards for one-time investments. Crowdfunding projects are relatively straightforward to set up, the main challenge comes from getting the project seen by enough people.
Successful crowdfunding investments are usually made up of lots of small donations, so it’s often the volume of donations that helps you to reach funding targets. To reach as many people as possible, it has to be a product or service that your investors will want to share across social media, one that clearly exposes a gap in the market or addresses a universal pain point. A crowdfunding campaign that gains enough traction may also get the attention of bigger investors.
Before crowdfunding sites or Enterprise Investment Schemes, one of the primary ways to get funding for a new business was with a good old-fashioned bank loan, and this is still a substantial way to gain investment today. Business loans are available for companies of all sizes and in all industries.
The terms of these loans can vary massively depending on who the loaner is. The length of the loan, when the repayments are due, and the rate of interest you will pay on the loan will also vary between providers. These loans usually have the option to make early repayments in full, which is useful if your business becomes successful quickly.
As you can see, there are quite a few options available for startups and small businesses to secure some essential funding. The type of funding best suited to your company will depend on the nature and size of your business, and you will likely get funding from multiple sources over the course of its lifetime. However, it’s best to focus on the investments that offer you the most of what you need to be successful, not just the highest figure.
Wesley Rashid is the Co-Founder and CEO of The Accountancy Cloud, who provide cloud-based accounting solutions for startups, scale-ups and established businesses.