By Sharon Argov, co-founder of Fundbird.
Last year saw a record number of people starting a business in the UK, with 581,000 setting up a company. Entrepreneurial spirit is clearly alive in the UK and with the alternative finance industry opening up many new doors for small businesses, entrepreneurs have a range of finance options at their disposal.
According to Nesta, alternative finance platforms accounted for £1.2bn in lending and investment in the first three quarters of 2014. However, with the emergence of so many services, ranging from peer-to-peer to crowdfunding, navigating the new finance landscape can seem a daunting prospect for small business owners, who are already pushed for time with the day-to-day running of their businesses. However, if you can implement a solid plan beforehand, you're sure to have a smooth journey to securing the right type of funding for your business.
Plan, plan, and double check
It's absolutely vital to get your numbers and requirements right at the start. Pinpointing exactly how much you need to borrow and how much you can afford to pay back within a defined timeframe is key to starting out on the right foot. If you have a solid business plan in place, this will help you to prepare financially and to help you ascertain exactly how much funding you require. Allocating exactly where in the business this money will go is also a wise idea. Amongst the 108 alternative finance platforms already out there, some providers can be particularly niche in their offering. By knowing where every penny will go, you'll be in a strong position to select the right provider for your individual requirements.
Have your documents at the ready
Getting all of your financial documents in place when you begin to look for finance is a must. While alternative finance providers might not be as restrictive as the banks in terms of the multiple forms, face-to-face meetings and extensive background checks required, they will certainly want to know about your business's financial fitness. Considering your monthly revenues, how many sales you process, how many credit card transactions you make and other similar figures is a good starting point. They might also ask to see bank statements, VAT returns and company accounts, so get into the habit of storing these away safely.
Honesty is the best policy
Don't aim for the unreachable. Be realistic about what you are able to take on financially and avoid taking on a loan that will add extra stress each month. This is where the value in a solid business plan is seen again; if you know the business's outgoings, and when in the year you may have to commit to more expenditure, you'll be able to take a loan that you can comfortably pay off each month.
Taking a measured approach is important when setting out to gain funding. With so many options, it can be easy to get carried away and excited with all of the possibilities out there. However, it has become a competitive market, so checking through your options with an intermediary, or even with a variety of lenders directly, will help you to find the most suitable option. We've also seen a rise in comparison sites, so make sure you use these valuable tools to navigate all the options at your disposal.
Extra finance is supposed to be a help, not a hindrance. By following these steps, and planning meticulously, you can take some of the time, complexity and stress out of finding finance. Last year, €201m of early-stage, growth and working capital funding was provided to European SMEs and start-ups through alternative finance platforms - don't miss out on this opportunity!