6 funding Options for growing your business

Establishing and growing a business requires capital, and identifying suitable funding options can be essential for success. There is a wide range of business growth fund options available to business owners in the UK, which range from traditional bank loans to alternative financing and venture capital.

Each choice comes with its benefits and drawbacks, and selecting the right one can depend on the business’s growth stage, development, goals, and financial situation. This blog post will explore six funding options for growing your business in the UK.

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Table of contents

6 Types of funding options for growing your business
Final thoughts

6 Types of funding options for growing your business

1.  Bank loans
Bank loans are a typical type of financing for enterprises. A company is eligible for a loan from a bank to fund its growth objectives. The loan amount, interest rate, and repayment period will depend on the lender’s policies and the borrower’s creditworthiness.

Banks usually need businesses to offer comprehensive business plan and financial records to determine their creditworthiness. If approved, the company will receive the loan amount, which it can use for funding its expansion plans.

The company must repay the loan with interest over a set period.

One of the benefits of bank loans is that they provide relatively low-interest rates in comparison to other forms of financing.

However, being approved for a bank loan can be challenging, particularly for small businesses with limited credit history.

2.  Government grants
The UK government offers different grants to promote small and medium-sized businesses. These grants are usually provided for particular reasons, such as development and research, training, or environmental improvements.

The eligibility criteria for every grant will differ based on the objective and industry. Some grants can require companies to match the funding with their own money or resources.

Government grants offer the benefit of not requiring repayment, allowing firms to obtain capital without incurring debt.

However, firms may need to submit complete plans and supporting documentation to prove their eligibility, and the application process can be time consuming and competitive.

3.  Venture capital
Venture capital (VC) is a kind of funding in which investors offer funds to a start-up or growing business in return for equity ownership.

VC firms usually invest in companies with high growth potential, and they frequently offer more than just capital, providing knowledge, mentoring, and access to their networks.

VC firms can invest in companies at different stages of growth, from early-stage start-ups to more developed businesses. The terms of the investment can differ widely, with the amount of equity given up by the company depending on the business’s worth and the investment level.

One advantage of VC funding is that it can provide significant capital for a business to snowball. Additionally, VC firms can offer strategic guidance and industry connections to help the company succeed.

4.   Angel investors
Angel investors invest their money into a company in exchange for equity ownership. Like VC firms, angel investors can offer more than just capital, providing advice and connections to assist the business growth.

Angel investors usually invest in earlier-stage businesses than VC firms, and the investment amounts may be smaller. The investment details are discussed between the investor and the enterprise, with the level of equity ownership and the valuation of the business dependent on the investment amount.

One of the benefits of angel investing is that it can offer funding for companies that may not be able to obtain VC funding. In addition, angel investors can be more willing to take risks on new concepts or untested markets.

5.  Crowdfunding
Crowdfunding is an approach to raising funds from a large group of individuals with an online platform. There are various kinds of crowdfunding, which include rewards-based crowdfunding, equity crowdfunding, and debt crowdfunding.

In rewards-based crowdfunding, backers offer funding in return for a reward, such as early access to a good or a customised thank-you note. In equity crowdfunding, backers provide funding in return for equity ownership in the business.

In debt crowdfunding, backers provide funding in return for repayment with interest.

One benefit of crowdfunding is that it can offer a way for companies to obtain funding without providing up equity ownership or taking on debt. Furthermore, crowdfunding can assist companies in creating a community of supporters and customers.

6.  Alternative financing
Alternative funding options involve peer-to-peer (P2P) financing, invoice financing, and merchant cash advances. In P2P lending, people and organisations provide loans to businesses through an online platform. The rates of interest and repayment terms change depending on the lender and the borrower’s creditworthiness.

A company can get funding in invoice financing by offering its unpaid invoices to a third-party lender. The lender will provide an amount for the value of the invoices and charge a fee for the service it provides.

In merchant cash advances, a company can get financing by selling a percentage of its future sales to a lender. Until the business repays the advance with interest, the lender will offer the funds in advance and gather a percentage of the company’s daily sales.

One benefit of alternative financing is that it can offer funding for companies that may not qualify for traditional bank loans. Furthermore, application procedures can be more simplified than conventional financing alternatives.

Hire financial advisors

Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 900 3500
Monday to Friday 9am – 5pm

Final thoughts

As you discover funding for business for your start-up or existing company, you can come across complicated sources that need significant time to secure. Furthermore, certain sources may offer just a small amount of funding. While the six funding choices stated above are the most commonly used, there are other avenues for getting financing, such as government grant programs, crowdfunding sites, credit cards for businesses, or a line of credit from a bank.

It is essential to carefully evaluate your funding choices before making a decision. Choosing an inappropriate funding source can lead to unfavourable outcomes, including conflicts between the lender and the company owner, a loss of control over the company, wasted resources, and other adverse effects.

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