Are you the proud owner of a start-up? Do you plan to be? Like most SME owners, you’ll likely need a financial boost to get your business up and running. But as you may have learned already, young enterprises often struggle to receive funding through traditional routes like bank loans. But there are several alternatives – let’s explore the best ones here.
Enterprise Investment Scheme
The Enterprise Investment Scheme was introduced by the government 25 years ago, to help resolve the issue of low funding success among SMEs. As it offers a tax-efficient way to supplement long-term investments, it remains an attractive option to investors and directors alike today. Its benefits don’t end there, however. The scheme provides up to 45% loss relief on business investments that don’t succeed, for example. While this hopefully won’t happen to your SME, it delivers a greater peace of mind to the investor.
And unsurprisingly, this perk encourages a high number of wealthy firms to invest in SMEs every year – and this of course could work to your advantage. FCA-approved investment specialists like Downing give investors a further incentive to enter into the EIS.
Venture capital funding appeals to many SME owners – and it’s easy to see why. This kind of fund typically consists of contributions from businesses, who give money in exchange for equity. As recipients don’t have to pay the money back regularly (as you would with a bank loan), it’s highly popular among start-up owners. Enter into this kind of investment, and you’ll be able to focus entirely on securing a consistent flow of income for the company, which will heighten the chances of the investment paying off.
Be aware that venture capitalists tend to look for SMEs that promise strong, sustainable growth – so, you’ll want to demonstrate the marketability of your start-up to potential investors. You could evidence progress toward revenue through the success of your social media strategy or other online campaigns, for example.
Like venture capitalists, angel investors offer capital in return for either equity or convertible debt. The principal difference between the two options is that angel investors usually prefer to support SMEs in either their local area or their own industry. So, if your company has a local focus – say it specialises in fresh, local produce – you may want to explore this avenue. In this situation, an angel investor will be more likely to put you in touch with relevant, nearby connections – and this could help you to grow your business fast. Likewise, choose an investor within your own industry, and you’ll probably gain some worthwhile networking opportunities. A lot of the time, angel investors offer exposure and financial support for SMEs in equal amounts.
So long as you know where to look, and what to provide, it’s fairly simple to secure effective funding for an SME. Once you’ve found the right investment option, you could be well on your way to achieving your business goals.
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