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Financing Your Startup for Growth

We know that navigating the world of financing and funding can be a daunting and challenging experience for startups. In our recent masterclass ‘Financing Your Start Up for Growth’ Emmie Faust, together with a team of experts, took a deep dive into some of the funding options available to founders. Loans will likely require a personal guarantee of some sort, but speak with the lender for more details.

Watch the full masterclass here.(If you are not already a member join Female Founders Rise free here)

Start-Up Loans & Support

We heard from David Woods at British Business Bank, a government-owned institution dedicated to bridging financing gaps. They collaborate with delivery partners, including Lloyds Bank, to support startups. Through the Start Up Loans scheme, you can borrow from £500 to £25,000 per director (up to four directors). They also offer access to resources, such as free university courses, business plans, mentoring, and templates to kickstart your entrepreneurial journey.

To initiate the funding process, visit the British Business Bank website, where you’ll be directed to a specific provider after filling out a brief form. However, keep in mind that this is a personal loan, making you personally liable for the debt.

Pros: This financing avenue offers an equity-free solution for startups before generating revenue.

Cons: Potential limitations on the loan amount may not suit high-growth businesses.

British Business Bank have a great guide here ‘Making business finance work for you’ helping you to better understand the options.

Invoice Financing

Gemma Heath from Lloyds Bank Business & Commercial talked about Invoice finance and the two types: factoring and discounting.

Factoring involves making your customers aware that you’re utilising a financing facility, while discounting keeps the arrangement confidential.

These options help you to access up to 90% of the invoice value, with your client paying directly to the financing facility at a later date allowing you better control of your cash flow. An example might be a marketing agency that has £50K of outstanding invoices from clients and is able to access those funds using invoice financing, rather than having to wait to be paid by the client.

These facilities can also assist in chasing unpaid invoices. You can choose to collaborate with either Lloyds Bank or a private invoice financing facility to facilitate this process.

Pros: This method allows you to access funds before receiving payments from your clients.

Cons: It may require funnelling all your invoices through their facility

Asset Finance

Gemma Heath also discussed borrowing money against specific assets, such as new machinery or vehicles, without requiring an upfront payment. This is called Asset Finance

These assets serve as collateral for the lender, enabling you to repay the loan through manageable monthly installments. Asset financing might also come with tax benefits and is a straightforward process. However, some providers must have certain requirements e.g Gemma shared that with Lloyds Bank you need to have been trading for at least two years and have an annual turnover of at least £100,000.

Pros: This option makes purchasing expensive assets more attainable for your business.

Cons: It might not be available for some early-stage businesses.

Business Loans

This conventional approach of borrowing a specific amount plus interest might be interesting to some businesses. One of the key benefits is retaining equity in your business, but it requires you to provide collateral (which could be a personal guarantee) and entails interest payments. Understanding the loan terms and avoiding giving away equity in the early days are 2 key things to weigh up.

Pros: You can secure the loan without giving away equity in your business.

Cons: It may not be suitable for early-stage businesses, and the interest rates might be relatively high.

Angel investment + Bootstrapping

Sarah Touzani founder of Waggle (Techstars ’23) is both a founder and an angel investor so she shared insights from both sides.

She explained the current challenges in the market, including high interest rates and the cautious stance of Angels and VCs due to uncertainty.

She encouraged founders to look at SEIS and EIS schemes as these are highly beneficial to investors. She shared the benefits of taking angel investment, highlighting the value of their expertise and industry contacts in addition to their financial support.

She also talked about the power of Angel collectives

Pros: Taking angel investment provides you with flexibility in choosing investors, allowing you to grow your business at your own pace

Cons: Raising funds can be a lengthy and challenging process, and bootstrapping can only take you so far.

Additional tips for founders

  • LinkedIn can be a great tool for finding potential investors. Make sure you focus on those who can bring expertise and contacts into your business other than just money.
  • Joining different communities can help you grow your network and even find potential investors. Sign up to Female Founders Rise and Landscape.vc ‘ s Slack Channel
  • Consider working part-time while growing your business. It can be a good way to pay for your living expenses and will take part of the pressure away from you.

How have you financed your business? Have you taken out a startup loan, bootstrapped, or got funding from angels?