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Start-up or scale up? How to secure investment for small business

Whether your start-up needs needs a cash injection, or it’s time to scale your fledgling firm, securing funding can seem daunting.

As one of the biggest challenges faced by any business owner, a viable business plan and a convincing presentation are absolutely essential. There are reasons to stay optimistic on the investment front, however. Alongside traditional forms of finance there is now an exciting range of alternative funding, all of which are worth exploring.

In our experience, there’s a form of funding to suit every type of business. Here’s a rundown of possible options, and tips on winning the investment your business needs…

If I’m a start-up

How to get funding from a bank

With a traditional bank loan, you borrow a fixed amount for a set period, to be repaid over an agreed timeframe. Different types of loans are tailored to meet different needs – e.g. working capital loans to get you up and running or to meet specific needs over a short periods and hire purchase loans if you need to invest in big-ticket equipment.

The chances of securing this type of investment can be higher if you have an existing relationship with the bank. If you have business or personal assets (e.g. property), it may be possible to use this as security for the loan.

Should I ask my family and friends?

Asking people you know to become investors may seem attractive – especially if credit issues or lack of business experience make it difficult to secure traditional bank funding. The arrangement could be a loan or a longer-term investment, where the investor supplies you with capital in return for a fixed share of the business.

However, be warned. Even if they are close family and friends, no arrangement is immune to misunderstandings and disputes. Minimise the risk of these by formalising the arrangement with an agreement in writing.

Should I arrange a partnership?

A partnership arrangement can be useful to pool investment funds and know-how at the same time. In these cases, partners could be involved in running the business together – or it may be a sleeping partnership arrangement, where one or more partners have little or no influence in business operations, but receive a share of profits. Always make sure that the roles, responsibilities and rewards of each partner is clearly set out in a formal partnership agreement before shaking hands, though.

If I’m a scale up

Can I crowdfund to scale up?

When your business is up and running but you need investment to get a particular product or service off the ground, crowdfunding is a great solution. Hosted by many online platforms, the two most popular types are:

Equity crowdfunding (e.g. Crowdcube and Seedrs). Here, you exchange a stake in your business with multiple investors in return for funds.

Rewards crowdfunding (e.g. Kickstarter). On these platforms, investors fund projects in return for non-financial benefits. Usually, this involves ‘early bird’ offers on whatever product or service you are developing.

To ‘win’ at crowdfunding, you need to get noticed. It’s not just about having a great idea, you need to tell a compelling story and present it in a persuasive way.

Will angel investing work for my company?

This is the ‘real life’ Dragon’s Den scenario. High net-worth individuals – or syndicates of them – supply businesses with a big injection of cash. The UK Business Angels Association is a useful starting point if you would like more information on what they do.

A significant investment coupled with a degree of mentorship can be a compelling proposition. However, the trade-off is that you need to sign over a large chunk of your business; usually up to 30%. Rarely (if ever) are decisions made on the basis of a five-minute pitch: you can expect any angel to put your business plan under highly detailed scrutiny!

Solo entrepreneurs

Pension-led funding

This can be a useful option if you do not want to get other people involved in your business and you have ruled out traditional bank funding.

As the name suggests, pension-led funding refers to various methods for unlocking cash that is already tied up in your pension arrangements to invest in your business. It could take the form of a loan to your company from the pension pot. Likewise, if your business owns certain assets (e.g. intellectual property rights), it may be possible to effectively “sell” these to your pension pot in exchange for capital.

Always take expert financial advice before going down this route – as it will need to be considered in the context of your wider personal financial strategy.

Government assistance

For solo self-starters, don’t overlook government-backed funds to supplement your investment strategy. This includes contributions to upgrade your equipment and premises, and to fund new recruits to your team. The government’s portal, Finance and support for your business is a useful starting point for exploring what’s available.

Planning is key

Whichever form of investment you choose, as a business owner your challenge is always the same: convince investors that your business is a ‘safe bet’.

A well-worked business plan therefore can never be overestimated. Accurate past-performance data, realistic projections, credible market research and a clearly-formulated plan of action: these are what decision makers need to see. Linked to this, you will also need a resource allocation plan, showing how, why, and when your investment funds will be used.

When seeking investment, it’s a case of putting the minutiae of day-to-day operations aside – and focusing on making your application flawless and credible. This is where EMMA can help. By handing over routine admin and financial tasks to our experienced virtual assistants, we give you the time and space to focus on what’s really important. To find out more, speak to EMMA today.