Posted: Tue 31st Jan 2017
As the UK continues to witness record numbers of people starting and growing a business, ensuring funding flows to these companies remains a hot topic. The past five years have been filled with innovation when it comes to new sources of funding so every month this year we'll be profiling the new options and other sources of finance for your business starting with angels, asset based finance and banks.
The advice is part of our Show me the money! campaign supported by HSBC and KPMG. As well as the content, you can attend events in Nottingham, Birmingham, London and Bristol throughout the year and meet lots of funders with money on offer! The events cost just Â£10 for non-members or free for members. Find out more here.
Raising investment from angel investors means accessing capital as well as hopefully useful industry contacts who will support the growth of the business. There are plenty of funds and investors eager to back good ideas and what's more, the government has made it financially attractive for angels to invest through the Enterprise Investment Scheme (EIS), offering up to 30% tax relief to investors, and the Seed Enterprise Investment Scheme (SEIS) which offers up to 50% income tax relief on up to Â£100,000 of investment and exemption from capital gains tax on any proceeds of sale of an SEIS investment.
To be a qualifying company for either EIS or SEIS, visit the HMRC website to ensure you meet the criteria and complete an application. The approval process can take a few weeks so it's advisable to do this before approaching investors.
Once qualified, take advice from Jenny Tooth, CEO of UK Business Angels Association: "It's important when you're thinking about the finance needs for your business to consider whether angel investment is right for you. You will have to give up shares in the business in return for the finance and this means losing some of the control you may have had to date.
"You also need to consider that investors are seeking to make a return (ideally they look for 10x), although angels are patient investors unlike venture capitalists so they are happy to work with you to grow your business over a number of years but you need to be prepared to ultimately exit your business, often by selling to another larger company, to enable the investors and you to realise the value of the shares. So if you feel that you just want to grow your business slowly and not share it with investors, angel investing is not for you.
"If you do decide angel investing is the way forward, begin by appreciating the questions investors will have about growth and returns and reflect this in how you present your business proposal.
"Show the investor you have an idea which can attract a good share of the market and customers (you don't need to have them yet, but show you know who they are). Show how you will make money from your service or product and that your business model can generate strong revenues over time. Show an understanding of your competitors and why your product/service is better (cheaper, faster, etc.) and how you might maintain this position - and how the business can be scaled over about a five-year period.
"Outline why you need the investment, what you will spend it on to make a difference, and finally what else you want from the investors, such as finance or market expertise or strategic advice etc, since angels like to see how they can help.
"When presenting your proposal, don't send out a complex business plan; start with a PowerPoint presentation of about 12 slides covering these aspects and have a 2-5 minute pitch ready in case they contact you.
"In terms of how to approach angel investors, whilst they can be quite elusive, many of them belong to networks and syndicate groups and so a good way to find them initially is to send your proposal through to the gatekeeper or co-ordinator who will look at your proposal, and if they think it's suitable for their network or group of angels will then get in touch and invite you to meet with them, most likely through a pitch presentation. Many of the angel networks are listed on the UK Business Angels Association website.
"You can also go to pitching events held in your area, but you may have to pitch at many such events before identifying the investors that are right for your business. However, these can also be good ways to gain experience at pitching.
"Finally, if you do find investors interested in your business, make sure you do your due diligence on them to ensure that they have the finance and experience you need to grow your business. You could be involved with them for some time so it's important to feel you have the right people on board."
This is where you borrow money against assets you own. According to figures from the Asset Based Finance Association in December 2016, the amount of finance available through 'asset based lending' to UK businesses reached a record high of Â£4.3bn, up 22% on the previous year.
An example provider is borro.com. Launched in 2008, borro enables you to secure a loan against assets: "We offer loans of Â£1,000 to Â£1,000,000 secured against personal assets including luxury watches, jewellery, diamonds, gold, fine art, antiques, luxury cars and more."
The loans are typically for six months and come with no early repayment fees. You can apply online or by phone. Borro covers the cost of having your assets shipped to their valuation centre and then having them valued. You are made an offer and if you accept, the money is in your account within 24 hours.
In the third quarter of 2016, Â£5.6bn of lending was approved by the main high street banks for small businesses, with over 80% of applications being successful. These quarterly figures published by trade body for the banking sector, the BBA, show the banks are hungry for your business.
As an example of the type of accounts on offer, HSBC offers free banking to start-ups for 18 months with the possibility of loans and overdraft facilities to support the launch. For growing businesses there's access to trade finance and business credit cards, plus potential to be profiled in the HSBC Knowledge Centre as well as sell to customers via the bank's popular in branch pop-up weeks where space is turned over to small businesses to show and sell their wares.
Compare rates and products at the banks and choose the one that will see you through from start-up to growth.
Attend events in Nottingham, Birmingham, London and Bristol throughout the year and meet lots of funders with money on offer! The events cost just Â£10 for non-members or free for members. Find out more here.
The Show me the money! campaign is supported by: