2019-07-24 By Maya Pillai
Small and medium-sized enterprises (SMEs) are businesses with no more than a certain number of employees, usually taken to be no more than 250 for medium-sized businesses, and no more than 50 employees for small businesses. SMEs outnumber large firms by a considerable margin. Small businesses accounted for 99.3% of all private sector businesses in the UK at the start of 2018, and a total of 99.9% of all businesses are either small or medium-sized.
One of the main challenges of launching a new SME is often finding funds to get the business started. Luckily, there are several viable options that are available for SME owners these days.
Here are five of the best ways you can fund your SME:
- Self Funding
The majority of SME business owners start by funding their venture themselves. Also referred to as bootstrapping, this strategy helps businesspersons to bolster the growth of their projects for some time until there is formal funding available to grow the business. This way forward takes considerable hard work and dedication, and can include using credit cards, leveraging personal assets and using savings, but it isn’t always enough. In which case…
- Your Friends and Family can Help with Fundraising.
One of the most effective ways to receive funding for your small business is through your friends and family. The closest people to you will believe in your vision more than those who need convincing from a distance. They will also believe in your ability to transform that vision into a reality. Perhaps the major downside to this is that you’ll be risking a personal relationship if the business fails and the agreement is not structured correctly.
- Equity Funding
Equity financing is one of the best ways to raise extra funding for your small business. Here, you can sell your company’s ownership. You’ll receive funding from investors. However, you’ll have to part ways with some portion of your ownership as well as some level of control in your business. Investors could be from your family, angel investors, or venture capitalists. But you’ll reap a significant amount of benefits by using equity financing, including accessing mentorship programs, experience, and advice and guidance from experienced entrepreneurs who have a real vested interest in you doing well. One other disadvantage to this method of funding however is that you’re in a relationship for the long-term, so you need to make sure it’s right for you.
- Selling Shares
New investors will want to know the value of your business including how much it could increase in value if they purchase shares. To accomplish this, they will want to know how much their funding will increase your sales as well as profitability, so you need a good business plan and solid figures to make this work. You need to provide prospective investors with an updated financial model that indicates the following: How the business is going to invest the money in different departments to increase sales. And how the initial cost to the business will impact the cash flow.
- You Can Take a Business Loan
Banks offer business loans for many different reasons including to help business owners finance equipment, real estate, vehicles and for a business cash advance. The loans are often for the short term, but it can sometimes be over the longer term. The duration may vary based on the level of financing needed. Many such loans require collateral. Often, this is the product being purchased. In this case, the investment will have a low-interest rate compared to one that has no insurance. Some banks will only offer such loans for a significant amount. Therefore, if you should need to borrow less than the minimum provided, you need to seek a different financial institution that will provide that level of credit.
When starting an SME, it’s easy to sometimes get carried away with a lot of spending. The current tax deductibility may even tempt you. Although tax breaks will help cut down on the costs for your business, they will not make it possible for you to purchase for free. You’ll still need to pay for the bulk expenses that a start-up requires. With that said, it’s vital for you to know how you are going to get that extra funding needed to make a real go of your SME.