Scalability is one of the oldest problems almost every other business, especially small businesses, faces. This can arise even after you have identified new business opportunities and established a customer base. Unless you had saved up for the occasion, securing some form of funding might be your only ticket to getting bigger premises, securing that crucial piece of equipment, better IT systems, new staff, and/or product development.
However, securing funding from private equity, venture capital funding, banks, and small capital markets can be quite a challenge, especially for start-ups. This is because most institutions are more comfortable funding large firms as compared to small businesses. According to research and studies by the IFC and the World Bank, companies with less than 20 employees have a 46% less chance of securing financing, compared to a 150% chance for already established and larger companies.
How Can Small Businesses Fund Growth?
Although tax credits, grants, and subsidized loans might help you achieve your dream, there still are several other viable options you can explore. Outlined below are 6 different funding options every small business owner should consider.
1. Regional Growth Fund (RGF) Programmes
This is a government initiative aimed at supporting and helping SMEs grow. According to research, approximately £1.6 billion has been allocated to more than 20,400 SMEs through RGF programmes via loans and grants. With the programmes run through chambers of commerce, councils and other local organizations, you can try your luck here. These, however, have different eligibility criteria that one would have to meet to get access to, say business grant. The most basic requirements include:
– Be in England
– Have an urge to grow
– Be able to create and grow jobs
– Invest private capital
– Be state aid compliant
– Unable to secure funding elsewhere
2. Local Enterprise Partnerships (LEPs)
This program involves businesses and local authorities coming together to create jobs and drive business growth in the area. LEPs and financing options offered differ from one place to another. You can, however, familiarize yourself with packages offered in your area by visiting the LEP Network website, then enter your postcode.
3. R&D Tax Credits and Allowances
R&D (Research and Development) tax relief scheme is designed to help promote innovation. You don’t necessarily have to be running an engineering, scientific, or technology business to qualify for such. Talking to an expert about R&D Tax Credits and Allowances can help you understand this initiative better and see if you are eligible for the same. You will be surprised at the perks that come with this tax relief scheme. For your SME to qualify, it needs to:
– have less than 500 employees
– have a balance sheet with less than €86 million
– have an annual turnover not exceeding €100 million
Your business’s eligibility for corporation tax relief is dependent on how much the business generates in profit. Companies generating profits can claim back 26p per £1 spend. If running on losses, you can them claim back up to 33 per £1. The best thing with R&D is it covers everything from material, software, utilities, and employee costs.
4. UK Export Finance (UKEF)
If your business involves exporting products, you might then want to look at UK Export Finance. The main idea behind UKEF is to ensure all viable exports go through regardless of lack of insurance or finance. The exports can be anything from intellectual property, services, and goods. There is a wide range of products and services that UKEF has to offer to small businesses, including credit facilities, bond support, direct lending, and insurance.
5. Innovate UK
This is a government-run initiative aimed at holding regular funding competitions. For your business to be eligible for this program, it needs to be in emerging fields, such as enabling technologies, health and life sciences, infrastructure systems, and manufacturing. Businesses that seem most innovative thus stand a better chance of getting financing from the government.
6. Start-up Loans
The government runs a start-up loan scheme designed to provide affordable financing to small businesses unable to get funding from high street banks. This scheme allows you to borrow up to £25,000 to be paid within 1 and 6 years and at a 6% fixed annual rate. Those who qualify for these loans also get access to templates, cash flow forecasts, help with their business plans, and a year’s worth of one-to-one mentoring, free.
