Money Matters

Ready to grow your business but short on capital? Try these 3 funding options

Got goals on business growth but need funds to make it a reality? Learn about three funding options: grants, equity investment and debt.

What will it take to grow your business? New premises? New staff?

Perhaps your marketing needs a boost, an acquisition is on the horizon, or a new vehicle, piece of equipment or technology will be a game changer.

Whatever it is you need, it needs to be paid for.

The old way of funding was to put on a suit, visit the bank and hope they said yes. Thanks to open innovations in finance, the number of funding opportunities has grown from a handful to literally thousands.

As the CEO and founder of Swoop, Sage’s funding partner, I counsel that businesses have three options when it comes to securing the capital they need to grow:

A business owner can either access funding through grants, equity investment, or borrowing.

Founders should take a smart approach, make sure they aren’t spending money unnecessarily and consider funding from more than one source to get the best possible deal for the investment they need to make.

Let’s look at each of these funding options in slightly more detail.

What you need to know about grants

Grants are awarded to businesses to encourage positive social benefits such as sustainability, innovation, research, or at times of adversity (such as during Covid).

They are usually for a specific project or purpose and to win one, you will need to make a strong case for why your business deserves the money.

The advantage of a grant is that it does not have to be paid back afterwards and awards can range from hundreds to millions of pounds, depending on the project.

Every grant has a particular set of criteria which a successful applicant must meet. Using a grant finder tool can make it quick and easy to check your eligibility.

When you find a grant that is right for your business, it’s important to move quickly: awards are often made before the closing date advertised, which means that, as time goes on, you are less likely to be successful.

My take is that grants are an incredibly valuable source of funding but the application process can take a long time, there’s no guarantee of success, and the money is often paid in arrears – so you may need to borrow to fund what you win because the awarding body only pays it back to you after you’ve spent it.

There may also be demands to raise match funding.

What you need to know about equity funding

If you are prepared to give up some ownership of your business, equity funding might be right for you.

In exchange for a percentage of the business, you will receive a cash injection.

To get this kind of funding, you need to put together a pitch to investors, outlining how much money you need, the story of the business you have built, the team behind it and other vital statistics.

If you have ever seen Dragons’ Den on TV, this gives you an idea of how it works – although the show is a highly accelerated version of what normally happens.

Not every business is suitable for equity funding: investors are looking for rapid growth and a substantial return on their investment.

Aside from the cash, the right investor will bring expertise and a network of industry contacts who will help you make significant strides in your expansion.

Bear in mind, however, that the competition is fierce. Investors are there to make money, they are not likely to invest in a good idea on its own.

They will want to know that you are capable of growing a successful business and that their participation is the next logical step.

I tell business owners: equity funding means selling a proportion of your business in exchange for capital.

Although the government has incentivised this kind of investment through the SEIS and EIS schemes, there are no guarantees.

When it comes to landing the right investor, you may have to kiss a lot of frogs before you find a prince.

What you need to know about debt

This is the option that gives you the most control over the funding you get.

Whatever you borrow must be paid back – with interest.

But you do not have to give up control of your business to somebody else, you have more freedom over how you use your money and you can access the money on your timetable, not just when a grant is available or an investor agrees to invest.

Before you get into debt, you should ensure that you’re borrowing wisely: interest rates can change, there will be repercussions if you miss payments and you need to be aware of who is ultimately liable for paying it back.

Some loans require a personal guarantee and affect your personal credit rating.

Borrowing is one of the most exciting areas of business funding because there are now so many options.

There are specific products for purchases such as vehicles, plant machinery, technology, and other major assets; loan products, which give you an advance on outstanding invoices or successful grant applications; commercial mortgages to buy your premises; there are even options for VAT and corporation tax payments.

The market has exploded, with specialised products, more flexible repayment terms and competitive prices.

Many banks are still quite limited in how much they can loan in a given period, and they may say “no” simply because they have reached their limit rather than because there is something wrong with your proposal.

Luckily, other lenders on the market are hungry to lend and there is support available for your business.

My view is that the bank should no longer be the automatic first port of call for businesses.

There are a huge number of innovative products and disruptive lenders who will be able to provide the funding you need for a specific purpose, often on terms that suit you better than a standard unsecured business loan.

Final thoughts on funding

Today, there are more routes to funding than ever.

Businesses have a wide range of choices, which enables them to be strategic about how they achieve their goals.

If a business wishes to raise equity funding, borrowing to fuel a growth spurt and winning a prestigious grant will be good evidence to investors that your business is ambitious and worth looking at.

If you prefer to remain in control of your business, borrowing will give you the capital you need to achieve growth. With so many options on the market, you can seek out the products that are right for your particular needs.

The right support should mean you get a “yes” the first time.

Business owners should also consider how they can save money by ensuring they get good rates on must-haves such as insurance, foreign exchange, business current accounts and utilities.

This has the additional benefit of making the business more appealing to funders.

My experience is that a blended approach works for customers.

Rather than simply borrowing to cover the full amount, smart business owners look to find savings, consolidate existing borrowing and explore available grants.

By structuring your finances in this way, you may find you can borrow less to achieve your objectives and put your operations on a stronger financial footing in the long term.