Securing finance is a hugely important step for a business’s growth and innovation.  Here, we look at five key options.

1. Bank loans

Traditional bank loans remain a cornerstone of business finance. The predictability of fixed repayment schedules and interest rates can appeal to many businesses. However, banks often insist on a solid credit history, security or collateral, and a comprehensive business plan.  Such requirements can be a barrier for new businesses or those with less-than-perfect credit scores. Despite these hurdles, bank loans are a reliable option for those who meet the criteria.

2. Venture capital

VC provides funding in exchange for equity, sometimes taking an active role in the business. This can have its benefits and downsides; whilst capital and expertise can supercharge growth, the trade-off is a loss of control.  Deep demand for VC funding dictates that typically only businesses with excellent growth prospects and impactful pitches are likely to make the cut.

3. Crowdfunding

Crowdfunding platforms have multiplied in recent times and these aim to allow businesses to pitch their ideas directly to the public. This can provide capital but also helps gauge market demand for a product or service.  Business owners looking to use this method of funding need to be wary of the various fees involved that can substantially reduce the net amount available.

4. Angel investors

Affluent individuals who provide capital for start-ups, perhaps in exchange for convertible debt or straight equity, can be a godsend.  They differ from VCs in that they usually stump up their own money and may be less risk averse when it comes to nascent companies. The relationship with an angel investor can often be more relaxed that with institutional investors.

5. Grants and subsidies

Finally, government grants and subsidies typically represent a non-dilutive form of finance, so entrepreneurs need not part with equity.  Such schemes are often aimed at specific sectors or initiatives in national or regional economies. Application processes can be rigorous, requiring detailed proposals and adherence to strict guidelines.  On the flipside, the benefits are substantial, as grants do not need to be repaid.

Conclusion

Each of these paths comes with its own challenges and opportunities, and there are no hard and fast rules.  By better understanding these options, businesses can make informed decisions and secure the finance needed to thrive.

Phillips Law’s experienced Corporate team are available to discuss any questions you may have when it comes to working out the best funding option or options for your business, please feel free to email us with your enquiry at [email protected] or call 01256 460830

Written by James Fairley