7 Different Options for Funding for Small Businesses: Which One is Right For You?

Is a lack of cash stopping your small business from growing according to plan? Do you have a great business idea that you are excited to start but need funding? You're not alone. As a business owner, you may struggle with finding the right funding option for your growing small business. That's why we put together this guide on 7 different funding options available, including lending and financing as well as crowdfunding and angel investment. Read on to find out more about these options so you can choose the one that best meets your needs!

The small business lending market is an ever-evolving one with new options popping up all the time. The huge amount of competition in this industry means that you can get a loan from many different sources, but each offer will have slightly different conditions and rates which makes it difficult to compare them for yourself. This article has provided plenty of information about some of the small business funding options available for you.

Great business ideas get business owners excited. The tricky part is sustainably funding those business dreams. There are more funding options for small business owners than ever before. From crowdfunding to angel investment, we take a look at the possibilities open to business owners.

1. Tax breaks and small business grants

Thousands of SMEs are missing out on funds by not realizing they are eligible for tax breaks or government grants. The UK government is actively looking to support businesses that are making valuable research and development contributions to the UK economy. Research and development isn’t just done by scientists in white lab coats in laboratories, it can be done by a start-up building a new app or an SME finding an innovative solution to a workflow process.

A recent report by Nesta showed that small firms are more innovative than large companies. The study found that small businesses make 12% of total UK innovation-related investments and account for 14% of high growth entrepreneurial activity, but their contribution to the economy is worth £84 billion per year - twice as much as larger businesses.

2. Venture capital funding

Venture capital (VC) doesn’t involve regular repayments as a bank loan does. For start-ups with irregular cash flow, this means that any money that comes in can be plowed straight back into the business. It lowers your personal risk as you won’t have to offer a personal guarantee to the investors if things don’t work out. They can open doors and new networks to you, helping to accelerate your growth. VC funding is usually provided by a professional investor. They are looking for an equity stake in the business, which means that they will take some of the profits earned and reinvest them back into your company.

3. Angel investors

These wealthy individuals provide capital in return for equity or convertible debt. You often get a lot more one-to-one support and personal mentoring than with VCs, especially if they made their money in a similar field to yours. It’s common for angel investors to support local initiatives, so if your business has a particular local angle then it could certainly be an avenue worth exploring.

Angel investors might not be a long-term solution for your business, but they can provide the funding you need to get started and make progress. If you're looking for long-term investment then there are other avenues open to you.

4. Cash advances

Unlike banks, advances are based on a fixed fee, not interest rates. It’s one more example of funds not available before fintech. The rise of fintech has been fantastic for entrepreneurs. Tech start-ups are constantly building upon and expanding services traditionally the domain of the high street and usually offer them at a cheaper rate and with much less hassle.

As with any type of advance, getting a cash advance is as easy as filling out an application form and then waiting for approval. One option is to apply directly through the company’s website. Another alternative would be to go through your checking account provider or credit card issuer if you have one that offers this service.

Applying for a cash advance doesn’t hurt your credit score. However, it will take some time before the balance is paid and interest rates are applied to this debt. This might lead you further into debt as only paying the minimum each month will cause a snowball effect of not being able to pay off the loan quickly enough.

5. Peer-to-peer lending

Peer-to-peer lending (P2P) platforms match SMEs directly with individuals or organizations who are willing to lend money. Loans tend to be quick and made up of many small investments, which is why investors find it so appealing (they can spread the risk). P2P is a model well worth considering if speed is a major factor for you.

What are some popular peer-to-peer lending platforms?

- Funding Circle: UK-based lending platform with a goal to lend £700m in the next five years.

- Lending Club: US, peer-to-peer lending for personal loans and small business financing since 2006.

Traditional funding methods are generally more stable than P2P lending. However, due to the nature of peer-to-peer loans (the fact that they're made up of many small investments), returns can be higher in some cases.

6. Crowdfunding

Instead of asking a few people for large sums of money, with crowdfunding, you are asking thousands of people for small sums of money. Entrepreneurs pitch their ideas online to the community, set a target, and see if the funds come back in. It’s possible to raise huge amounts in a short space of time. It can even help get your business plenty of exposure and a wealth of useful feedback.

What are some popular crowd-funding platforms?

- Kickstarter

- Indiegogo

- Patreon

- GoFundMe

Crowdfunding has been around for quite a while now, but it is quickly becoming an increasingly popular option. If you're looking to raise money, crowdfunding might be the way to go. It's also worth noting that although there are some platforms that offer equity for small investments.

7. Bootstrapping

This is all about building a business with no external input and, for some, the digital world has made this route more attractive (and feasible) than it used to be. Futrli can support you all the way. Identify when you might need finance and make a robust plan for getting it. Our all-in-one forecasting and reporting engine are designed to bring the future of your business to life visually. It’s perfect for budgeting, helping you discover more funding options for SMEs.

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