More people want to be entrepreneurs, but need start-up funds. Here are some avenues to explore
The number of Britons starting their own businesses is rocketing, and this entrepreneurial spirit looks set to continue in 2014. More than 520,000 new businesses registered with Companies House during 2013, a rise of 8% on 2012 and a record high, according to website StartUp Britain.
The vast majority, at 95%, were small ventures launched by individuals, it adds. And with a diverse range of funding options for new enterprises, if you are hoping to go it alone this year you needn't let a lack of finance thwart your ambitions. The first step is drawing up a business plan and working out how much money you need to run and develop your trade in the first couple of years. Then, you can consider the options:
Grants and loans
The government's Start Up Loans scheme was originally aimed at young entrepreneurs, but no longer has any age restrictions. Entrepreneurs with a good business idea can apply for loans of up to £25,000 to help them get started. The money has to be repaid over terms of up to five years, with interest payable at 6% a year.
Successful applicants get free business advice, points out James Caan, the Dragons' Den panellist who runs the company that administers the scheme. "Mentoring is as important, if not more important, than the actual loan itself," he says.
The government also runs the Enterprise Allowance scheme, aimed at people currently receiving Jobseekers' Allowance, or lone parents on income support. If you fit the criteria, your Jobcentre Plus adviser can refer you to a specialist adviser, who will assess your ideas. If you pass, you'll qualify for an allowance payable over 26 weeks and worth up to £1,274. The scheme includes business mentoring.
Other grants and loans may be available. Organisations such as The Prince's Trust, for example, offer support to young entrepreneurs, while many local authorities have schemes aimed at start-ups in their area. In some sectors, blue-chip companies will help with finance for small businesses. The website Businessfinanceforyou.co.uk provides a comprehensive listing of these schemes.
Also, check if your start-up is eligible for the Seed Enterprise Investment Scheme (SEIS). If so, investors in your business could claim generous tax reliefs on funding of up to £100,000 each, making it easier to attract them. To qualify, your business must have been trading for less than two years.
To find out more about the financial help and which schemes might be available to you, visit www.gov.uk.
Bank funding
Don't assume your bank will turn you down; the main high-street lenders emphasise their desire to work with start-ups. "Lenders are supplying vital funding to small and medium-sized enterprises across the country," insists Anthony Browne, chief executive of the British Bankers' Association. Banks offer overdrafts and loan facilities to businesses that meet their lending criteria, which includes a good credit record. You will need a clear business plan, with financial projections, but the banks will help you work on this.
The biggest are also conscious of competition from new entrants to the industry such as Aldermore, Shawbrook and Metro Bank. These offer a range of benefits to entice entrepreneurs, from free business banking for an introductory period, to personalised advice, which can help cut the cost of running your start-up.
Harnessing the crowd
Many entrepreneurs are by-passing traditional forms of finance and turning to crowdfunding sites that enable entrepreneurs to pitch their ideas to a wide audience.
In 2013 these sites raised more than £500m for small businesses, according to Nesta, the innovation charity. "The sector is primed to go on and completely replace aspects of retail banking," says Julia Groves, chair of the UK Crowdfunding Association.
Lucas Gordon, 26, set up his own company last summer. He was convinced his idea for selling reduced-price high-end fashion by operating online and cutting out the wholesalers would work, having seen similar ventures in the US, but initially struggled to convince investors. "We needed stock to start trading and that required capital investment, but traditional investors are very sceptical about sectors such as fashion," he says.
It took him four months simply to persuade his bank to open a business account for his company, Evocha, and though it offered him an overdraft, it wouldn't provide a loan. Backers such as business angels provided useful advice, but didn't want to invest.
Gordon eventually got started with £10,000 from the government's Start Up Loans scheme, and secured £30,000 of funding from more than 80 investors through the Seedrs crowdfunding site.
That capital has given the business vital breathing space, he says. "The Seedrs money gave us a chance to experiment, to work out which areas we should focus on – that would never have been possible otherwise."
Sites such as Seedrs and Crowdcube enable investors to buy an equity stake in businesses looking for cash. The venture gets the funding it needs, while investors hope one day to make a profit on their starting stake if the business is successful. Many businesses selling shares this way are able to offer investors SEIS tax reliefs.
However, while the sites do some rudimentary checks to make sure the companies aren't crooks, and in certain cases there is minimum qualifying criteria to list on the sites, they all make clear they're not recommending the businesses they list.
Individual investors may offer very small sums of as little as £10 each, say, but collectively they provide businesses with the cash required.
Meanwhile, sites such as Kickstarter also enable businesses to simply ask for contributions towards the cost of setting up – donors may be promised benefits such as discounts on the business's products, but not a financial return. Funding Circle and Thin Cats are other examples which enable investors to offer short-term loans to businesses. These loans carry an interest rate agreed during the fund-raising process.
Keeping costs to a minimum
The more frugal you can be when setting up and running your business, the less funding you'll need, whether for start-up costs or working capital. Make cost control a crucial part of your business plan from day one, with detailed projections of likely expenses.
"It can be easy to lose sight of some of the simpler ways of helping your business," says Paul Shephard, director of business and private banking at Clydesdale and Yorkshire banks. "But regularly reviewing costs should be top of the to-do list."
If possible, try to ensure fixed costs such as office space are flexible, so you can scale up or down as your business progresses and avoid large costs if your activities don't justify them.
The internet can help. The website makeitcheaper.com, a price comparison service aimed specifically at the SME sector, is so convinced it can save customers money on everything from mobile phones to energy, it promises to make up the difference if it can't find you business efficiencies worth at least £1,000.
Also look at huddlebuy.co.uk, a site that works for SMEs in the same way as Groupon targets consumers. It which aggregates small businesses' buying power in order to secure the discounts on bulk orders of materials and supplies – everything from stationery to digital marketing – that larger organisations get as a matter of course.
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