Financing a small business is becoming tougher by the month in the UK. Recent reports suggest that in July 2012, £200 million less has been made available to small businesses from high street banks than in June 2012. For one month, this is a spectacular downturn. The Bank of England’s Mervyn King has insisted that a sum of money will be loaned to the high street in order to increase the banks borrowing facilities but business commentators have been sceptical of the plan causing it to hit the buffers.
Perhaps the most worrying, recent, statistic revealed in the press is the fact that more than a quarter of small businesses are turning to credit cards and payday loans for funding. This is a risky form of borrowing that usually carries high interest rates and really cannot be recommended for anything other than short term solutions.
It isn’t all doom and gloom though, lending to small businesses from building societies and private lending companies has been on the increase; partly because more business owners being turned away from the banks but also because the building societies and private lenders have been offering competitive interest rates. Small businesses should be able to find a loan with interest rates of between 8 and 10%; though this obviously depends on certain risk factors.
The UK government has also been helping start-ups with a couple of schemes. Small loans of around £2,500 can be obtained by young entrepreneurs, aged 18-24, via the Start-Up Britain scheme; this will provided a significant financial boost for any budding home or internet based sole trader. More established businesses can also get government help via the Enterprise financial Scheme; though this particular scheme does require the borrower to have 25% of their budget up front before they can borrow the remaining 75%.
If loans are not readily available, or you just don’t want to be saddled with the debt, then consider some creative financing options. Young business owner Andrew Denham raised capital for his bicycle repair business in Sommerset by “crowdfunding”. This technique involves sourcing investment from the public with the promise of discounts, gifts or favours further down the line. In Andrew Denhams case he gave free lessons on bicycle repair and manufacture along with a t-shirt in return for investment – he made £40,000 in six days!
Read more: Crowdfunding Pledges Expected to Double