Alternative finance: what's out there, and what's right for me?

This is a guest post from Doug Richard, successful entrepreneur and former Dragon

In my line of work I meet plenty of folks who want to start a business, or grow the one they have – and the most common question I get asked is: “how do I get funding?”

No business will get off the ground without some money put behind it – and in today’s climate, finding cash via traditional means is no easy task. In spite of promises to the contrary, banks are lending less, not more, to SMEs – and at very unsavoury rates.

Despite this there is, in fact, a vast and growing array of alternative finance options available to young businesses, if you know where to look. It’s important to get to know them – and to know which is right for you.

Let’s take some examples. One of my students at the School for Creative Startups was fortunate enough to receive a large order for her products from a major department store. She needed to go out and find the cash to fulfil the order – but with a purchase order to her name, this was a piece of cake.

She could go to a bank or, better still, to one of the growing number of invoice trading companies. These companies – MarketInvoice being a prime example – allow businesses to access the cash tied up in invoices by auctioning them to a network of professional investors.

Alternatively, she could seek a loan from a peer-to-peer lending platform such as RateSetter. RateSetter allows you, the borrower, to set the amount you would like to raise and the interest rate you would be happy to pay and matches you with savers looking for better returns than high street banks can offer.

If yours is a business that can demonstrate what banks like to call ‘serviceability’ – the ability to repay a loan – then you would be a fool to give away ownership of your business in the form of equity to raise some cash. The minor interest you could pay on a loan would be massively outweighed by the loss of future earnings and control.

But if you find yourself unable to prove that you can service a loan, then seeking an investor is no bad thing – just ask another of my students.

After showing their designs to a potential buyer, they were asked to provide some samples. This raised the problem of having to find the money to pay the production costs, but without any proof of an order at the end of it.

At this point, you would do worse than to turn to the growing number of crowd funding platforms (for example Seedrs) that match investors with start-ups seeking finance. The start-up defines the amount they would like to raise and as soon as the amount is raised, subject to terms of agreement, you have your cash.

Another option is Angel Investment. Business angels are individuals who put the wealth of their wallet and expertise behind young businesses, without saddling them with debt.

You may be lucky enough to meet your angel by chance, but there are also ways to seek them out. A good place to start would be to consult the many networks, events and local business groups up and down the country – networks like the UK Business Angels Association .A final word of caution: be wary of those that charge for access to angel communities. Call me old fashioned, but if you have one group of individuals with cash to spend and another with bare coffers, it seems nonsensical to expect the latter to pay.

And so contrary to public perception, as a result of the ever increasing alternative finance space, there has never been more fundraising opportunities for small business than currently exist. It is time for Britain’s young businesses to look beyond the banks and embrace the options that are at their disposal. Need cash? Seek and you shall find.

About Doug Richard

Doug Richard is a successful entrepreneur with 20 years’ experience in the development and leadership of technology and software ventures. Doug featured in the first two TV series of Dragon’s Den. Doug was the first American to receive The Queen’s Award for Enterprise Promotion. He is a fellow of the Royal Society of the Arts, has honorary doctorate from the University of Essex for his contribution to the teaching of Entrepreneurship and is a guest lecturer on entrepreneurship at Cambridge University for the Nanotech Masters and PHd programmes.

Doug has always been a champion for startups and small businesses. In 2008, after teaching a one-day class in entrepreneurship, Doug decided to found an enterprise dedicated to helping people start better, more profitable businesses. 

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