How to raise £100,000 for your business

We look at the various options available for raising the all important first £100k

Raising £100,000 might seem like a mountain to climb when you are just starting in the early days of your business, but it need not be that hard. Self finance and banks are not the only options available to you. There are a few other ways to get going.

To determine what path you will take to finding the right funding for you, you will have to pose yourself a series of questions. What is your business? If it is an internet or technology-based company you might need more money and an investor who is prepared to take a higher risk.

The time frame is also crucial. How long do you have to raise the money? And what risks are you prepared to take in order to get what you need? For example, are you prepared to use your own money, invest relatives and friends’ capital or seek alternative funding from a larger pool of investors such as business angels or even venture capitalists?

Whatever you do, don’t panic. Let Startups.co.uk guide you through the minefield of choices open to you in your quest for growth.

Your Own Money

This is one of the most common ways of funding a business and if you have the money readily available can be beneficial. There is no waiting around and virtually no red tape involved. However, if something goes wrong and you have nothing to fall back, you could face a severe knock-on effect. Your business’ fate is in your own hands.

The Four Fs

More commonly known as founder, family, friends and fools. If your own money is not quite enough you may choose to seek help and next stage funding from friends and family. Those involved may ask for something in exchange such as a stake in the company but this is up to your own discretion. Written guarantees and/or legal documentation may also have to be drawn up. Whatever you do, make sure that you plan for every eventually. Unfortunately most people don’t enter a business partnership thinking about what can go wrong, but just like a marriage – divorce can happen to anyone and at any time.

Bank loan/Overdraft

When people think about raising money their first port of call is generally the bank. In fact, approximately between 60% and 70% of small businesses call on their local bank to borrow a sum of money to see them to the next stage of growth or to get the company up and running. However, banks will always look for security and if you don’t have it you will have to go elsewhere. For a smaller amount of money this will often take the shape of a secured loan backed up by the borrowers own home. Acceptance will almost always depend on the type of business and the amount of security the bank can receive in return for funding.

If you need a bit more than £100,000, don’t worry some banks can help you. But usually only if they have a venture capital arm. For example, HSBC Ventures UK deals as an in-house arm and invests in amounts of between £250,000 and £2m in established companies. HSBC Private Equity, a sister company, considers larger amounts. However, for smaller amounts of between £1,000 and £25,000 HSBC also has an associated fund called QTP that invests in small, high-growth companies.

Read more in our guide on which bank is best for small businesses.

Grants

If you don’t fancy facing your bank manager and are looking to secure a smaller amount of money, a grant or a combination of grants could be more suited to your business. This is one of the cheapest forms of finance but beware of the sometimes non-financial conditions that maybe attached to the grant. These could include the number and type of people employed and occasional restrictions on items on which the money can be spent.

Grants range from local initiatives to government funding as well as private funds across the country. And if you thought grants were just about a few hundred pounds then think again. Some of these initiatives have their own venture capital funds supported by the the Department for Business Innovation and Skills (BIS) which will fund businesses seeking between £50,000 and £250,000. Thousands of other ‘hard cash’ schemes exist and are provided by banks, the EU and other large as well as smaller organisations. If in doubt consult your Local Enterprise Partnership.

Read more in our guide on what small business grants are available.

Enterprise Finance Guarantee (EFG)

Backed by the Department for Business, Innovation and Skills (BIS) this guarantees a loan of up to 75% of your desired amount, on figures between £1,000 and £1m from banks and other financial institutions. The scheme is generally designed for small firms that have viable business proposals but who have failed to get a conventional loan because they don’t have enough security. To be eligible you must be a UK company with an annual turnover of no more than £41m and operate in a sector eligible for EFG (which is most of them).

Incubator

Unfortunately money alone cannot nurture a business. However, help is at hand in the form of business incubators or, as they are sometimes coined, innovation centres or business accelerators. These are companies set up to invest and dedicate their time, money and advice into a venture that is set to hatch into a company of the future and vary in their range of support packages and demands.

Incubators normally take your idea at an early stage and support it until it reaches the next stage of growth. Incubation packages will vary greatly. These include funding for early stage companies in areas such as accommodation, hardware, software, management, marketing, telecoms, legal and accounting services and recruitment, for example.

It is important to shop around as many incubators as possible to see what they offer. They range from university business support units, which generally help academics take their idea to the next stage, to pure venture capital led incubators and are generally backed by people with varying amounts of experience.

As well as funding they may also give you the chance to use their technology, staff and support services as well as corporate identity, for example.

Go to our incubator section for a more in-depth look at what they have to offer. Search for an incubator in our directories.

Business angels

If none of the other options suit your needs, perhaps you could turn to one or more business angels. These are private investors (often former business owners or senior managers) who have a certain amount of capital in their bank accounts and who are interested in directly investing in private companies.

In return for their investment, which can range from approximately £25,000 to £1m and can either involve a single angel or a network of angels, the party involved will generally ask for an equity stake and perhaps take a seat on the company’s board. There are also tax incentives available through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

And if one angel isn’t enough, you can always try to organise a group of investors. It takes more time but it can be done. Getting together a group of business angels in a network can often be used to acquire a larger pool of funding. Angels are often entrepreneurs who have between £50,000 and £1m to invest. An example of this is the UK Business Angels Association that is on hand to guide and advise you.

The addition of an angel to the team or someone who can impart good business advice, may be the deciding factor in the success or failure of your venture.

Read our business angel section for a more in-depth look at what they have to offer.

 

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