The days of friendly bank managers are long gone. We have reached a point where banks don’t trust businesses and businesses don’t trust banks. So, what are the alternatives for cash-strapped businesses who want to grow?
1. An equitable solution
A new market for funding small business and start-ups through equity is beginning to emerge. Services like Crowdcube and the newly launched Seedrs allow investors to back businesses they like. Over time, crowdfunding services could attract a new crowd of investors where previously business angels feared to tread.
Supercharged income tax and capital gains tax breaks (in the form of the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme tax breaks for early stage investors) have helped lead the charge. Any self-respecting early stage business should find out if they qualify for EIS or SEIS investment.
2. Look to your peers
The peer-to-peer funding model is gaining traction in the lending market. Funding Circle is an online marketplace where people can lend to businesses. So far, it has funded around £40m of loans. A drop in the ocean for the economy, but an interesting toe in the water for an emerging new sector.
3. Cash is king
Love it or loathe it, payday loan provider Wonga has really changed the face of the UK short term personal lending market and now it is trying to do the same for business lending.
Services like Market Invoice are a new alternative to the opaque world of invoicing and asset financing.
4. Don?t take help for granted
J4Bgrants.co.uk offers a useful search tool to find potential awards that your specific business might qualify for. The Technology Strategy Board also runs a series of competitions and call-outs for research and development funding.
5. Put your foot on the accelerator
If you are a high potential start-up or an early stage business, a new breed of incubators and seed accelerators have emerged.
Their models vary, but generally they have one thing in common: offering expertise and a bit of funding to push your business forward to the next stage. Their usual price: equity and a share of your upside.
6. Give yourself options
Believe it or not, the banks are still lending. Services like Loan Finder are a useful way to compare and contrast.
Funding Options is a new service that aims to make access to multiple financing options easier by getting the information and application right from the start.
One answer for larger scale funding are retail bonds. So far, they have been confined to the bigger companies – the likes of National Grid, Severn Trent and Tesco Bank. Many of these have been regulated by the London Stock Exchange and some are tradeable to give investors flexibility if they need money ahead of any fixed term.
It cannot be long before portfolios of loans to smaller businesses are packaged up in the same way – and this could be a real threat to short sighted banks in the future.
Andy Yates, entrepreneur and director of Huddlebuy.co.uk gives Real Business readers regular top money saving tips to help business owners save thousands of pounds.