Alternative sources of investment

There are several ways to fund your business that don’t require a loan or grant, including:

  • pledging your personal sources of finance to support the start-up
  • securing buy-in from key investors known as ‘business angels’
  • crowd-funding

Most start-ups won’t be of interest to investors like ‘business angels’ (such as Cambridge Angels); these are venture capitalists and private equity firms that invest in businesses looking for a higher rate of return on investment and an exit plan.  However, if you’ve had interested parties approach you, take advantage of the investment opportunity by presenting them with your business plan.

On the other hand, crowd-funding is an excellent way to grow a small business. Individual investors collectively invest in a business, each pledging a certain amount in return for a stake in the company, return on investment, or other benefits – like discounts. Currently, there are several crowd-funding platforms available for like-minded investors to support international businesses and creative projects, including crowdfunder.co.uk, crowdcube.com, and kickstarter.com.

Another fast-growing option known as ‘factoring’ is becoming increasingly popular with SMEs. Since the restriction of bank financing and the credit crunch, this practice has become a major source of working capital. It provides cash flow for businesses by releasing value tied up in outstanding customer invoices, allowing them to manager sales ledgers and credit control processes. To take advantage of this option, businesses will need an annual turnover of at least £50,000. If your business has an annual turnover of more than £250,000, confidential invoice discounting may be a better option.

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