5 ways to fund a small to medium sized enterprise
According to the National Federation of Small Businesses, there were 5.9 million small businesses in the UK at the start of 2020, with this number increasing by 113,000 over 2019.
All these businesses needed funding so they could start operating on a strong footing. But if you’re looking to join their ranks, perhaps you’re thinking how, exactly, to raise funds for your small or medium-sized enterprise. In this guide we look at five of the more popular ways people get their business dreams off the ground.
Family, friends, or savings
Often, it’s simplest to gain funding close to home, either from existing savings or those of family and friends. Savings are a fine means of funding a new business, but relying on family and friends can be tricky.
The people funding you need to be made aware that they may not get their investment back, and if there are profits, you may find they request a share. Failure of the business can thus drive a wedge between you and your nearest and dearest, so always be careful when investigating this avenue.
Bank finance can be a good choice for entrepreneurs that have both a good credit rating and assets to leverage. Secured business loans provide funds over the long term and can be used to rent or purchase premises, equipment, and other high-cost items, however you must ensure you can afford the repayments, and keep on top of your business’ financial situation so you don’t find yourself unable to pay back the bank.
Business angel funding is investment that comes from an experienced business owner and investor. Typically, alongside funds they will provide mentorship for the business owner, in return receiving a pre-agreed percentage of the business’ profits. To get a business angel on board, you must have a good pitch and strong idea.
If your new business is struggling to get its customers to pay on time, invoice finance can be a way of unlocking the funds. With it, a company buys the invoices off you, after which it chases and collects the invoice payment for itself. This can be a good way to chase problematic payees, but it does cost money – you won’t receive the entire sum of the invoice back.
Seeking venture capital is akin to angel investment, except those investing are not individuals, but a group or organisation. Venture capital is typically utilised by larger businesses or those that have a high-growth idea that gets industry talking. That means it’s not an ideal means for all SMEs, but certain businesses can certainly benefit.