By Lynne Gowers on 26th September 2017

Startup funding – what to do when the bank won’t lend to your business

The number of entrepreneurs in the UK is rocketing – last year alone company formations reached a new record, with over 650,000 new businesses being incorporated during 2016*.

The vast majority of startups are small ventures launched by individuals and one of the challenges they face is getting the right funding in place early to maximise their chances of success.

If you have tried to secure a traditional bank loan and your bank won’t give you the time of day, all is not lost. These days there is a wide range of funding options available to new enterprises, which can often be mixed and matched to get your business off to a flying start.

Getting started

Before you start negotiating the world of startup funding, you need to draw up a clear business plan and work out how much money you need to launch and develop your business over the initial couple of years. Once you have done this, you can start considering the various funding avenues available to you.

Here are some of the main options:

Startup loans

A startup loan is a government-backed personal loan available to individuals looking to start or grow a business in the UK.
These are available through Start Up Loans.

Applicants work on a business plan with their mentor before pitching to a panel. You borrow between £500 – £25,000 at a fixed interest rate of 6%. The average amount borrowed is £5,000 and loans must be repaid within 5 years. The loan is unsecured so there is no need to put up assets to support an application.

As well as financing, successful applicants get 12-months of free business mentoring and access to exclusive offers to give their business the best chance of success.

Venture capital specialists

If you are not successful in securing a government-backed loan, there are a whole host of companies who specialise in lending to new and growing businesses.

Here are a few to consider:

Fleximize

  • Instant quote – apply online
  • Borrow £5,000 to £500,000
  • Up to 48 month loan term

Boost Capital

  • Borrow £3,000 to £500,000
  • Instant quote – decision in 24 hours
  • No assets required
  • Have a broker partnership

Ultimate Finance

  • Instant decision
  • Borrow up to £50,000
  • No set up fees
  • Up to 12-month loan term

A word about SEIS…

While we are talking about capital borrowing, the Seed Enterprise Investment Scheme, or SEIS, is worth a mention. It is a government scheme to encourage seed investment in early stage enterprises. The scheme allows business investors to claim generous tax relief on funding to startups, making your business a more attractive investment opportunity.

To qualify for SEIS you must have been trading for less than 2 years.
Find out more about SEIS

Pension-led funding

Pension-led funding lets you borrow from your personal pension in order to invest in your business. This puts you firmly in control of your finances and is a great way of growing your business while potentially increasing your pension pot. Read our blog post about this

Crowdfunding

If you don’t want to be saddled with a hefty loan when you’re just starting out, crowdfunding may be an alternative to think about. It works on the principle of securing financial backing from large numbers of small investors, rather than relying on injections of capital from larger investors or a traditional bank loan.

As the saying goes, “tall oaks from little acorns grow” and many startups have used crowdfunding with great success.
Check out Crowdcube and Seedrs which are the leading crowdfunding platforms in the UK.

Angel Networks

“Angel investment” is equity financing where an investor takes shares in your company in return for funding. Much like the TV show “Dragon’s Den”, business “angels” also bring their experience and knowledge to help your company achieve success.
Despite being a relative newcomer to the UK startup funding scene, business angels collectively invest an estimated £1.5 billion annually, making them the largest source of investment for startups and early-stage businesses seeking to grow.

For advice and comprehensive information on this type of funding, a good place to start is the UK Business Angels Association (UKBAA) which is the national trade association for angel investment.

New Enterprise Allowance

The New Enterprise Allowance is a government scheme aimed at helping the long-term unemployed back to work by helping them set up their own business.
If you’ve got a workable business plan, you could be granted a weekly allowance of up to £1,274 over 26 weeks and the support of a designated business mentor.

To be eligible you must be over 18 and receiving either Jobseeker’s Allowance, Income Support or Employment and Support Allowance. You may also be eligible if you get Universal Credit, including if you are already self-employed.

Find out more about the New Enterprise Allowance here

The Prince’s Trust

If you are aged 18-30 with a great business idea you can turn it into reality with a grant from the Prince’s Trust Enterprise Scheme. As well as funding, they provide training, mentoring support and free resources to start you on your business journey.

If you are unemployed or working less than 16 hours a week, you can apply for a grant of between £1,000 – £5,000.

Get started with the right accounting partner

Securing funding is just one of the stresses of setting up a business – lenders and investors often want detailed financial information and projections before they take the plunge so bringing the right accountant onboard from the outset really eases that path.

Even once you have funding in place in many ways it’s just the start. Stepping into a world of complex tax rules, legislation and compliance can be daunting, but at Boox we’ll get to know your business to provide an accounting service that’s tailored to your needs.

Nifty online accounting tools keep you in control while our dedicated accounting team cut through the jargon to give you friendly, helpful support as you grow your business.

We’d love to hear about your new business and see how we can help you succeed. Get in touch with the Boox team

*figures as per the CFE’s – Centre for Entrepreneur’s – analysis of Companies House data.

Lynne Gowers Written by Lynne Gowers

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