What potential sources of financing are there for your company?

There are multiple sources of funding for your business including:

Some of them are self-explanatory. So let’s look at the sources of funding that may require further expla­nation.

Angel investors

An angel investor is someone who often has a business or financial background and has funds to invest in companies.

Typically, they take a stake in the company in return for their investment and therefore tend to take a greater interest in the company, often using their experience and expertise to increase the success of the company in which they have invested.

If the business requires a multi-million pound investment, business angels are not the right choice as their invest­ments are usually in the hundreds of thousands as they are often involved in more than one venture.

More about angel investing

Venture capitalist

Venture capital is the financing of an equity investment in a poten­tially high-growth business and is behind some of the UK’s best-known and most innov­ative companies such as Pizza Express, Center Parcs, Odeon, UCI Cinemas and Spotify.

They typically invest within three years of founding, i.e. in the early devel­opment phase, and often choose areas such as:

• Clean technology
• Internet
• Digital media
• Life Sciences

Their invest­ments often serve to finance the devel­opment of new products and technologies. In addition to cash, they will also invest their expertise to ensure the success of the project. Check out the case studies on a Corporate financing website and you will very quickly get an idea of ​​whether they are a good fit for your business. The questions to ask are: Have you managed to secure funding in your sector? Are the finance amounts they have secured on behalf of customers compa­rable to the amount you are claiming?

Try Northern Ireland NI Business Infor­mation for funding infor­mation and in Scotland Scottish company. In England, a good place to start is your local regional devel­opment organi­zation.

More about venture capital financing

Equity financing

Equity financing is the process of raising capital for a business by selling ownership shares to investors in exchange for financing. Unlike debt financing, which involves taking out loans that have to be repaid with interest, equity financing does not require repayment. Instead, investors become co-owners of the company and share in its profits and losses. (Note: Angels and VCs can also fall under this description, although we wrote about them separately here.)

Equity financing is often used by start-ups and growing companies seeking capital to expand their opera­tions or enter new markets.

The most important aspects of equity financing include:

Investor partic­i­pation: In return for their ownership shares, investors often play a role in strategic decision-making.
Risk sharing: Investors bear the risk of loss if the company does not do well, but can also benefit from its success.
Long-term capital: Compared to some other sources, equity financing can often provide longer-term support.
Evalu­ation and negoti­ation: The valuation of the company and the terms of the equity investment are crucial in negoti­a­tions to ensure fair terms for both parties.

Private equity firms are perhaps the clearest examples of this type of financing, and you can also count sources like here Crowd­fundingIPOs as well as incubators and accel­er­ators.

In the UK there are two specific forms of tax relief commonly used by stock investors: The Enter­prise Investment Scheme (EIS) and that Seed Enter­prise Investment Program (SEIS).

More about the equity financing route

friends and family

You might think it’s easy, but this option can be full of problems. A relative might borrow their savings and then take care of it, causing stress and tension between those involved. The lender may disagree with the way the business is being run and try to intervene, causing more stress and friction. It’s not uncommon for families and friend­ships to be divided over money. A proper loan agreement or investment plan should be drawn up and all parties should adhere to it. This will hopefully prevent arguments and upsets.

Learn more about securing money from family and friends

Public grants

UK government grants are non-repayable, but there is a lot of compe­tition for them and they are almost always awarded for a specific purpose or project, such as the devel­opment of a new product or service. For funding infor­mation try British grants.

Government grants for UK businesses are constantly updated. Here you will find the list of currently available national and regional grants Here.

You can receive grants for the following reasons:

• Innovation and business growth
• Boost the regional economy
• Reduce energy costs or save energy
• Create more jobs
• To support new regional businesses
• Reduce carbon emissions
• Innov­ative services for space
• For high-speed broadband connec­tions
• Purchase specialized equipment
• Building repair and conser­vation

As with any financing deal, there are pros and cons. Some of them are:

• The grant does not have to be repaid
• No control is taken over the company
• No part of the business will be taken over in return for the grant
• There are many different types of grants and it is important to find the right one for the project
• There is great compe­tition for grants
• In general, the company is expected to raise the amount of the grant from its own resources
• Typically they are awarded for proposed projects, not those that have already begun
• The appli­cation process can be very time-consuming

More about government sources of financing for companies:

Commercial financing

Commercial loans can be an effective option for buying a business as you can usually spread repay­ments over a long period of time, perhaps 20 years, although this usually requires some security.

More about commercial borrowing

Find business partners

As with family and friends, business partner­ships can be too conflictual to be successful. If this is the path for the company, each partner should play a specific role, each lever­aging their own strengths and recog­nizing their weaknesses so that they can complement each other. Then the partnership could succeed.

Step payments

If you don’t have the entire amount you need, the seller sometimes accepts partial payments, that is, payments after the first payment made from future profits of the company.

Any provider who agrees to this must have great confi­dence in the company’s continued success, which is a good sign. The main disad­vantage is that contracts of this type usually contain a clause stating that in the event of late payment, the seller will take back the deal at no cost to themselves.

However, this means that the payment plan may already be halfway through before this happens and the seller gets the business back.

We’ve discussed some ways to finance a purchased business. A decision must be made as to which method is best for the company in question. This can be a time-consuming process, but it’s worth it to get it right the first time.

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