30th April 2019

Have you considered alternative finance to fund your business growth?

Raising your first round of external funding in order to grow your business can seem like a daunting task. It takes time, effort and resource, and at the end of the process there is no guarantee of success.

For start-up businesses in particular the lack of a trading track record can make traditional lenders reluctant to support a new venture. Even for established businesses with fast-growth ambitions there can be difficulties in securing enough finance.

This is against a backdrop of declining demand for finance overall. Latest data shows that the stock of bank lending (which remains the largest part of the market) has continued to fall in real terms, although alternatives to bank lending are continuing to grow.

The declining stock in bank lending is reflecting that many SMEs are building cash reserves rather than investing in growth. This may be a prudent strategy for many but there will be firms out there for which the best defence against uncertain times is to go on the offensive and grow. At the British Business Bank we understand that providing better information to smaller businesses, aimed at building their awareness of and confidence in finance options, is an essential first step in encouraging those with the potential to grow to seek the finance best suited to their needs.

Awareness of alternatives to traditional finance is increasing, with more small businesses knowing about the availability of peer-to-peer lending, crowdfunding and venture capital. As well as getting advice from their accountants or other advisors, those that need to know more can look at the Business Finance Guide we developed jointly with the ICAEW and others.

Our role at the British Business Bank is to make finance work better for smaller businesses, and that includes delivering funding that might not otherwise be available. That is why we worked with the Local Enterprise Partnership to establish the £40m Cornwall & Isles of Scilly Investment Fund, to provide commercial debt and equity finance between £25,000 and £2 million to small and medium sized businesses to help them grow and create jobs.

Awareness of equity finance is less common outside London and the South East, so the fund is keen to promote the benefit of equity investment. This type of patient investment can be most appropriate for the fastest growing companies, and if we can attract those companies to the fund that will bring long-term benefits to the region.

A final thought is that getting funding is never just about the money. Businesses need confidence in their funding partners whether that be a high street bank or a crowdfunding platform. It is even more important when looking at an equity investor, who will become a partner in your business, that you also consider what else they can bring. The right investor can work with you and bring a wealth of expertise, knowledge and contacts to help your business grow.

To find out more about alternative finance you can download the Business Finance Guide, visit the Finance Hub and also find out more about the Cornwall and Isles of Scilly fund via ciosif.co.uk

Ken Cooper is Managing Director, Venture Solutions, at the British Business Bank.