Starting a business will take up a lot of your financial resources, and to up the cash flow, you will need some help.
Perhaps your request for a bank loan was once rejected and you worry about going down that route again. However, there are many business finance solutions outside of traditional bank loans.
In this article, we will be exploring the various alternative finance options for your Bromley based business.
Venture Capitalists (VCs)
Venture capitalists are groups that will offer funding in exchange for part ownership your company. This type of investment option will mean that your company will be evaluated, and negotiations will take place to determine the percentage of your company that will be up for grabs.
What makes VCs stand out from other finance options?
• They invest large sums of money.
• They have a track record of sticking with young businesses for many years it matures it goes public or is bought out.
• They expose themselves to high risks in the hopes of enjoying exponential returns.
• They usually aim to multiply their investment by 10 times within seven years.
Tip: If you want to get venture capitalist funding for your business, try to drum up some PR attention and build momentum behind your business name. You can do this by winning awards or working with big names.
If you are seriously considering choosing a venture capitalist funding option for your small business, you need to be aware of the risks involved. If you don't meet the financial obligations, you could potentially lose a large percentage of your company.
Community development finance institutions (CDFIs)
Community development finance institutions are locally based organisations that offer finance to SME's and social enterprises that can't get funding from the bank. They focus on providing finance to businesses that have been financially excluded because of bad credit history.
What makes CDFIs stand out from other finance options?
• They have a social mission to serve the needs of underfunded businesses.
• They are based in the local communities they serve, which means they fully understand the needs of those businesses better than any other institution.
• They are flexible in the ways that they lend.
• They don't have a blanket lending policy.
• They don't rule out specific sectors or companies with a bad credit history.
• They apply real human judgment to the decisions they make about lending.
• Their interests are aligned with the local communities within which they are based.
Tip: If you own an SME or social enterprise and you offer a unique service to local residents– CDFIs might be the best option. Their unique ability to support those who have been financially excluded makes them a viable option for social enterprises that will benefit the local community.
An angel investor is someone who has a high net worth and provides funding for startups, SMEs and entrepreneurs. They might ask for a small percentage of your company in exchange for funding. Angel investors are usually a close friend or family of the business owner.
What makes Angel investors stand out from other finance options?
• They usually seek to invest at the very early stages of startups.
• They are usually friends or family members of the entrepreneur.
• They provide more favourable terms compared to other forms of lending.
• They are focused on helping startups to find their footing rather than making a profit.
• They are the opposite of venture capitalists.
Tip: If you are a small startup with a big dream, you can attract an Angel investor by simply networking and building strong connections with people who understand your vision.
Invoice financing is a way of borrowing money against an amount you are owed by customers. This can be handy when you need to make payment for service and wait for your customers to pay you for a service you have rendered. It is a service you might use in the early days of your business to ensure that cash flow is enough to keep things running.
What makes Invoice financing stand out from other finance options?
• It is slightly less risky than most other financial options since you will be paid the money back from your customers.
• It is a temporary option in the early stages of a startup to help with cash flow.
• Not for long term financing.
Tip: Invoice financing is not free of charge, and you will not receive the total value of the invoice as the lender will deduct fees for their service. Therefore, invoice financing may not be the best option for longer-term financing.
Crowdfunding is the process of pooling small investments from many different investors. There are now several UK online crowdfunding platforms such as Kickstarter, Indiegogo, GoFundMe, amongst others. Crowdfunding is a good option for people who want to raise seed money for their businesses.
What makes crowdfunding stand out from other finance options?
• Low risk, so investors don't need to worry about the effects of economic changes.
• Investments can be made easily online.
Tip: If you are using a popular crowdfunding platform, look into how you can jazz up your proposal and make it compelling. Then, share the link of your crowdfunding campaign with friends and family and encourage them to share it with their others too.
When you have a ground-breaking business idea that can help your local community, you might be entitled to a grant scheme. The good news is that when you are awarded a grant, you won't need to pay the money back.
Four types of grant funding:
• Competitive grant funding is when different proposals are matched against each other, and the best one wins the funding.
• Formula funding is when grants are awarded to pre-determined recipients.
• Continuation funding is when grants are offered to recipients that have received them before.
• Pass-through funding is when grants are awarded by the government to be further distributed to the local community.
Business finance solutions outside of a bank
Been rejected by the bank? There are many alternative funding options for your local Bromley business. As you do your research, keep a close eye on the risk levels of each business finance option, and ensure that it's right for you before making a decision.