Starting and Scaling your Business – funding options

Launching a brand new business is a daunting affair which will require a degree of set up costs depending on your organisation’s activities. Planning is essential to ensure that a positive cash flow is maintained while the business grows and gather momentum.

While self financing may seem the perfect option, there are several reasons why you should maybe seek out third party financing from investors or other funding bodies. Putting up your own cash could mean that you are exposing yourself to too much risk. There could also be a number of tax breaks by using external funding.

Also, through exploring other funding options you may be able to tap into the professional expertise of a growing network. Whether you take on contributions from investors or government subsidies, these often come with a raft of help and support in all areas of running and growing a business which would help your own trajectory. 

Unless you know where to look, it is difficult to know what options are open to you, so we have outlined some of the main sources of funding and grant administration for individual sole traders and businesses.

Government grants and subsidies

Governments and local authorities often have a wide range of different funding options available based on various schemes and projects to help regeneration projects and local investments.

Often with these types of funding there is no requirement to repay the capital, but they do require much more stringent eligibility requirements and vetting processes, as well as more demanding reporting expectations. Often success in writing bids for government grants are focused on responding to needs of the local area, whether it is through job creation, improving the local area, and local economic development. 

Equity financing

If your business is already relatively well established, and you are looking to scale up, then equity funding could be the better option for you. Equity financing involves selling a portion of your company’s shares, or equity, in exchange for capital. Think Dragons Den, or Angel investors – usually these are investors who have some degree of interest in your business’s activities, and feel that their own expertise and knowledge could bring immense value to an existing business.

While equity financing places no additional financial burden on the company through loan and interest payments, it does mean a degree of handing over some control, as most investors will want to have a voice about the direction of the business. By committing a financial interest they will require to see some degree of return on that investment. 

Although some investors are happy to take a back seat and have the confidence in the original business owner to take it forward, most will expect a more collaborative approach.


Debt financing

Should you prefer to retain complete control of your business, you can look at injecting cash through more traditional means, such as bank loans or business lines of credit – otherwise known as debt financing.

Debt financing does place a financial burden on you as the principal business owner. You are liable for the payments and interest as set out in the credit agreement. This could increase the stress and pressure to make expansion plans successful, but it ensures that you maintain full control of your own business.

Another method to look out for is ‘bootstrapping’ – this involves using your own capital (which we have already pointed out could be a risky method of financing), but could also be indicative of good fiscal husbandry and responsibility. Bootstrapping may be a good short term solution to prove to external investors that your business, and you as the owner/director are worth investing in.

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