Scalability. It’s the age-old problem small businesses face. You’ve established yourself in the market, built a customer base and identified new opportunities – but need to invest to capitalise on them. Maybe it’s a piece of equipment, bigger premises, product development, new staff or better IT systems.
However, in today’s economic climate, small businesses have difficulty securing funding from traditional sources like banks, private equity and small cap markets.
IFC research found that large firms are 150% more likely than small ones to use bank financing for a new investment. According to the World Bank, 46% of companies with fewer than 20 employees cite access to and/or cost of finance as a major constraint to growth.
So how do you fund growth?
Grants, tax credits and subsidised loans can help (as can alternative sources like peer-to-peer loans and crowdfunding, but those are topics for another blog post).
Here are 6 different funding options worth investigating.
1. Regional Growth Fund Programmes
The Regional Growth Fund (RGF) is a Government initiative providing money to programmes that support SMEs. According to the latest figures, RGF programmes have allocated £1.6 billion to 20,400 SMEs via grants and loans.
RGF programmes are run by a few national initiatives, but most are through local organisations like councils and chambers of commerce. Each has its own eligibility criteria, but the basic elements are that your business must:
- Be based in England
- Want to grow
- Create or protect jobs
- Be investing private capital
- Be unable to find funding elsewhere
- Be state aid compliant
See the list of live programmes here.
2. Local Enterprise Partnerships
Local Enterprise Partnerships (LEPs) involve local authorities and businesses working together to drive growth and create jobs in the area.
Different LEPs offer different types of financing to local businesses. To find your nearest LEP, enter your postcode on the LEP Network website.
3. R&D Tax Credits & Allowances
The research and development (R&D) tax relief scheme is designed to foster innovation. The criteria around qualifying R&D activity are quite broad – you don’t have to run a scientific, engineering or technology business, so it’s worth speaking to an expert to see if you’re eligible (you may be surprised).
Under the scheme, SMEs get more generous tax relief than larger businesses. To qualify as an SME you must:
- Have fewer than 500 employees
- An annual turnover under €100 million
- A balance sheet under €86 million
The amount of corporation tax relief depends on whether you make a profit. If your small business is profitable, you could claim back up to 26p for every £1 of qualifying R&D spend. If you’re loss making, you can claim back up to 33p in the £1. R&D spend covers everything from employee and material costs to utilities and software.
There are also R&D Capital Allowances (RDAs), which you can use for qualifying capital expenditure.
4. UK Export Finance
If you export, it’s worth investigating opportunities with UK Export Finance (UKEF). Its goal is to make sure no viable exports fail because they lack finance or insurance. And exports can be goods, services or intellectual property.
UKEF offers a range of products and services to help you win contracts, fulfil contracts and get paid, including bond support, credit facilities, insurance and direct lending.
5. Innovate UK
Innovate UK is a Government initiative that runs regular funding competitions. If your business is in emerging and enabling technologies, infrastructure systems, health and life sciences or manufacturing materials, you may be eligible for financing to help you develop your innovations.
Bookmark this page to see the current competitions (you can also sign up to their newsletter to be notified as new ones go live).
6. Start Up Loans
The Government-backed Start Up Loan scheme is aimed at businesses struggling to get affordable financing from high street banks.
You can borrow up to £25,000 for between 1 and 5 years at a fixed annual rate of 6%. If you qualify for a loan, you get free help with your business plan and cash flow forecasts, access to templates and guides and a year of free one-to-one mentoring.
And there are hundreds more UK schemes available
These 6 schemes are a good place to start. Usefully, the Government maintains a list of live business finance and support initiatives. You can filter by the type of finance, your business size, sector, growth stage and location, and it will give you a list of relevant links.
Have you benefited from these (or other) small business-funding schemes? Let me know in the comments.
Key Takeaways
- Although it’s currently hard for small businesses to get bank funding, there are alternative sources of financing available
- There is a range of Government-backed schemes – covering grants, tax relief, loans and business support – aimed at helping SMEs grow
- Local organisations run most programmes, so investigate opportunities through your local enterprise partnership and nearby Regional Growth Fund programmes in the first instance
