The inescapable truth of building a business is that it requires investment. How you obtain that investment is critical to your enterprise in the short and long-term because regardless of how good your idea is, costs will always play a role. Eagerness to get results can result in poor decision-making and often involves more expensive solutions than carefully planned and well-executed investment through grant funding.
This is why securing grant money sometimes involves lengthy application processes with lots of red tape and successful proposals often receive funds in stages. On the other hand, you may have competition for market-share and miss an opportunity if you are unable to secure investment in a reasonable timescale. Here are some pointers that will help you choose the right route to your finance.
Identifying Grant Money
Between local and national government grants as well as European funding initiatives, there are more grant committees than anyone can realistically assess or contact on a fund-by-fund basis. Thankfully, there are organisations to help people access the right funding for their businesses. Don’t be fooled into paying for a grant finding service because they offer nothing unavailable at the two best free services. The UK government offers support on their website, but GRANTfinder is an invaluable service that provides businesses with a list of suitable grants. (ED; is there an Irish version?)
Access to Grant Funding
No funding committee worth its salt is going approve and application without accompanying cash flow forecasts and profit and loss accounts. Most will require the figures wrapped in a business plan with sound market research to back up any expectations. If you can’t get these together, you may as well stop now. You can use support organisations found through the UK support finder tool linked above if you need help putting these vital elements of you application in hardcopy This is essential for someone who doesn’t share your vision to understand the concept in pounds and pence.
Is There a Downside to Grant Funding
In fairness, grant funding is great for many businesses and the fact that many grants available are non-repayable helps businesses when they are most vulnerable. The only downside is the length of time between application and funding. This is hardly ever a problem for applications for small amounts up to five thousand pounds and many local authorities have economic development funds or similar to nurture new businesses, especially when they are potential employers.
Businesses that require greater investment often enter into a lengthy process of assessment and approval that can last more than a year for large sums and particularly so when European funding is requested. Even with the lengthy process, large investment is often difficult to secure without matched funding. This means securing equal investment from another source such as private investors or even another grant. It’s clearly not a simple process, but a successful application could mean your business is able to function and meet the demands of its customers or clients and you could ultimately arrive at that point for very low costs or simply investing time and energy.
Banks and Alternative Lenders
Frankly, banks are often the cheapest way to borrow, but they will perform as much due diligence on your figures as any funding committee and they are much less likely to lend in the current climate. If you have a good idea and your research is good, but you have exhausted other options for borrowing, your business may be eligible for a government backed Enterprise Finance Guarantee. However, you still need to prove you can afford the repayments and that is not always possible with a new business or borrowing to expand.
Alternative lending options exist for established businesses such as asset finance or a card sales related business cash advance. Asset finance requires businesses to have equity in their assets and loans are granted based on the value of those assets after depreciation is applied. This can be useful if your business is short on cash flow and needs to be liquid to operate.
A business cash advance allows businesses to borrow based on the amount of sales they process each month and this is a great of accessing funds with flexible repayment terms. Essentially, your business repays a fixed percentage of your card sales amount each month so the pound amount goes up when your business has a good month and you pay less when your business does not perform well. Cash advances only need proof of card sales rather than a business plan and forecasts, but they are only available to businesses that have been trading for more than a year.
Making the Right Choice
It should be obvious that cost plays a role in the right decision, but quick access to funding is also a problem for many businesses who have wages to pay or simply don’t have time to wait for approval. The important thing to understand is that any source of funding must serve the intended purpose as well as leave room for profit.