How did you start your business?Entrepreneurs have very different answers to this question. A few years ago, they would have mainly been, “with my savings,” “with help from my family/friends,” or “with a bank overdraft.” Today, answers differ. “I crowdfunded my business,” one might say. Or, “I joined a government funding scheme.” Over the last few years, financial turmoil has created a funding environment that is more versatile than ever. That doesn’t mean that bootstrapping and bank lending are dead, but they are competing with a greater amount of other options. Sounds great, doesn’t it? But, well, it’s not all flowers and butterflies. Indeed, business funding has become a bit of a maze. Entrepreneurs carry millstones of new questions around their necks: which lender can I trust? What source of funding will boost growth, for a business like mine? And what exactly is “crowdfunding” again? We’d like to give you a mental torch and compass of knowledge to navigate through the finance maze, which is why we have generated our first ever Real Business Funding conference, to be held on March 15th, at the British Library. If you haven’t registered yet, what are you waiting for? It’s free and you’ll get to meet Brent Hoberman! Even if you can’t make it, here are eight ways to fund your business, which we’ll be discussing more this month.
Bank lending: it’s not deadBank lending is well and alive, but the biggest lenders’ decision making processes have changed. There are still ways to make your business attractive to the banks, as long as you know which banks are lending to whom, and on what terms. Keep in mind that it’s time to think beyond the main high street banks – there’s a new breed of bank emerging throughout the country, and growing significantly. They’re challenging the Big Five with a return to face to face banking, with continuity, relationships, and flexibility. Business leaders want the UK’s challenger banks to be personal, localised and transparent. They’re different from the five high street banks that have historically been responsible for 90 per cent of business lending, and whose funding capacity has diminished over the past four years. Both the Big Five and challenger banks are keen to lend to businesses that don’t pose a great risk, and if you’re business is established, ambitious, and ready to grow, chances are bank lending is still the option for you.
Entrepreneur bonds: what could they do for you?When they needed investment to expand Hotel Chocolat, CEO Angus Thirlwell and FD Peter Harris tapped up their customers – and gave them chocolate in return. Peter Harris will expand on the challenges and opportunities that came with the decision to set up a bond, at Real Business Funding. In the twenties, businesses launched “fan bonds”, where a company raised cash from its customers. That model isn’t dead. Bonds aren’t the model to find the cheapest way of getting development capital; it has to be a fair deal for both you and your customers. If you get it right though, bonds are an alternative way to fund your business without the help from banks or venture capitalists.
Pension-led funding: does it sound risky to you?This is an interesting one. Research proved that director pensions could release ten times more funding than the business bank, but entrepreneurs are widely unaware of this source of funding. Around 40 per cent of business owners in the UK have funds in pension schemes, which could be immediately deployed through pension-led funding; in particular, via the business’ own Intellectual Property (IP). This type of finance has been an option since the introduction of the Finance Act in 2004 – yet, business leaders are generally unaware of – or confused by – the model. The model is becoming particularly interesting to franchises. For everyone else, it’s at least worth a consideration.
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