This article will cover the two main kinds of funding you can explore – business grant and loan funding – and how they might be able to work for your business. There are also various forms of alternative finance, such as peer to peer (P2P) lending.
Every business needs a bit of extra help sometimes, particularly when it comes to finance. Having extra cash flow or a contribution towards a project from a grant or loan can help you bring in new equipment, hire employees, and develop your business, so it’s good to know what options are out there!
Grant funding for business
When people think of business funding, they’re likely to be thinking of a business grant. A grant offers a sum of money towards the total funding cost of a business project, and this money does not have to be repaid, unlike a loan. They’re often funded by Government initiatives, so target certain types of businesses and projects to help enable growth in these areas.
Grants aregenerally retroactive, meaning that you agree your project ahead of time withthe agency, complete your project, and the amount agreed upon is repaid afterthe project is completed. This is both an anti-fraud measure and a way of theagency controlling the amount of funding they release.
Unfortunately, consumer businesses and start-ups are often ineligible from grant funding due to the competition in these sectors. However, new schemes open on a regular basis, so it’s always worth getting in touch with the Growth Hub to see what might be available! Pros include:
- The biggest pro of grant funding is that the money you receive does not have to be repaid – this contribution can help you save money on your project, or enable spend in other areas.
- As funding projects are targeted towards certain initiatives, they can encourage you to develop areas of your business you might not have considered, such as employing a consultant, or examining your environmental impact. These projects can help make businesses more efficient, better for the planet, and explore new angles for your company.
Cons include:
- Grants only offer a percentage of the cost ofyour project – generally between 10-30%, though some grants can be as high as50%. You are responsible for sourcing the rest of the funding needed tocomplete the project.
- Start-up businesses are often excluded fromgrant support. Grants are usually funded by taxpayer money, so agencies need toensure that the projects they fund offer good value for money, and that’s difficultfor them to gauge when your business doesn’t have a track record. Most grantswill consider start-ups from two years of trading.
- Grants can be highly competitive – everyoneloves a bit of free money, after all! Your project needs to represent greatvalue for money, and match well with the priorities of the grant.
- Grants are restrictive with what they cover, andare often only available for two purposes; the purchase of equipment (capitalfunding) or consultancy, which includes research and development (R&D)projects (known as revenue funding). They can’t be used for marketing orworking capital for your business.
- Grants are often conditional – they’re tosupport business growth, meaning that you often need to agree to create jobs ata rate set by the grant provider, or may have to agree to pay the Real LivingWage, hire from underrepresented groups, or reduce your carbon emissions.
Loan funding for business
Loan fundingis often viewed less favourably; however, it can be a great opportunity foryour business. Loans are often provided by non-profits, community groups orcharities, and offer large sums of money, which could be enough to cover yourwhole project, upfront. They can also be used in partnership with grant supportto help you with your development.
Almost every business sector can access loan funding, as the repayable nature of the funding means it can be a lot more flexible. However, as with every loan, that money does need to be repaid and often with an interest rate. Pros include:
- As stated above, some loans can offer enough tocover your entire project cost, and amounts can be as little as £500. Thismeans that you can borrow as much or as little as you need to, and the loanagency will never advise that you take out more than you could reasonably beexpected to pay back.
- The loan programmes we advise businesses to considerare all non-profits. Their loans are generally unsecured, meaning you aren’tlaying collateral (like a house or car) against your loan.
- Unlike a bank, agencies like the BusinessEnterprise Fund aren’t trying to make a profit, so whilst they do charge aninterest rate, this is just to ensure that they can keep the service runningand have a good amount of capital to lend out. These interest rates tend to befixed, meaning they won’t increase over the period of your loan, so you canalways calculate your repayment.
- Loan funding can be used for almost anything inthe business, including things that grants won’t cover, such as marketing oroffice equipment. It can also be used as working capital, to allow a businessbetter cash flow.
- Business loans aren’t limited by sector – evenconsumer businesses, such as cafés and retail outlets can access them, despitebeing generally excluded from grant opportunities.
Cons include:
- The biggest con of a business loan is thatwhatever you borrow, you have to be prepared to pay back, generally with addedinterest. This can put a financial strain on a business, particularly smallconsumer businesses and start-ups.
- Interest rates with some loan schemes can bemuch higher than a business loan from your bank – this is due to the loansbeing unsecured. Businesses who have a good relationship with their banks mayfind going directly to their bank manager better-value than a loan scheme.
- Like any loan, you can be refused for a businessloan, particularly if you have previously declared bankruptcy or are facingfinancial difficulties.
Explore your options – contact us today
Both forms of grant and loan funding have their benefits and drawbacks for your business, and it’s always best to explore your options by contacting us. But if you need a bit of extra cash flow, you don’t need to feel stuck – there’s always schemes available!
