Starting a business can be a confusing maze, especially when it comes to finance and securing capital. Where can a person seek reliable information on external funding, especially as there are so many companies and organisations offering finance? How does a person distinguish a genuine organisation, when larger and established organisations have curtailed lending? How reliable are online finance companies? How does one even deal with online financing, especially since there are so many available? A start-up owner can do well to make sure s/he undertakes careful research and due diligence before signing anything on the dotted line.
Starting a Business
There are many reasons why people set their own businesses up ranging from personal and financial freedom, developing a concept, product, or service or simply doing something that makes the individual happy. Starting a business can be an exhilarating and fun experience, especially when an idea becomes a reality, in the form of a product or service.
Since the economic crises of 2008, lending to start-ups and SME (Small, Medium Enterprises) has been significantly reduced, with the lack of liquidity available from wholesale bankers. Additionally, seeking external funding requires jumping through many hoops, without even any guarantee of securing funding. Most often than not, seeking funding for start-ups can take time, especially if start-up funds are not readably available. Despite federal government intervention, SMEs still face an uphill challenge to secure enough funding to help with business growth or development.
Entrepreneurs
Each SME is different and each one has its own story in terms of the rationale in company formation. Part of the fun of creating a business is getting ideas turned into products and services quickly. However, lack of capital or borrowing opportunities had a major impact on small businesses.
Lack of funding or restricted funding, can act as a spanner in the whole process. The entrepreneur can do well to make sure they seek advice and support at an early stage to avoid running into financial difficulties early on in the business.
The lack of increased cash lending in the market, has prompted governments to chart a course of action to get businesses the funding they need.
Financing a Business
As a result of the challenging economic situation and the tight squeeze on lending, many businesses are seeking alternative avenues to source funding. So, where do people go for funding? The traditional places people can go to secure funding and some are highlighted below:
- Start-up government loans
- Bank loans
- Angel investors
- Venture capital firms
- Private equity firms
- Small business loans
- Family and friends
- Personal savings
Recently, an increasing number of companies have turned to pawnbrokers to obtain funding. Surprised to see pawnbrokers even mentioned in the same category as other traditional sources of lending? Interestingly, pawnbrokers have seen a 45% increase in business over the last couple of years in the UK.
According to BBC reporter Will Smale, who conducted an interview with a pawnbroker management firm, found that businessmen and entrepreneurs were going to pawnbrokers, to raise capital with a short term loan. People have been turning to pawnbrokers because banks have refused to extend their overdrafts, thus potentially missing business opportunities or even using the money to pay staff.
Pawnbrokers are likely to guarantee up to 70% of the total value of the item being pawned. Users of the service state that there are no credit checks and the process is very quick unlike bank loan applications, which can take weeks.
Furthermore, according to the Local Data Company report entitled "Pawn is Reborn," which surveyed results from 720 towns and cities across the UK and found that pawnbrokers had enjoyed a 45% increase in business, whilst banks lost 1% of business over the same period. If pawnbrokers are not the option, where can a business turn to seek lending?
Further Information
According to the Federation of SME (Small Medium Enterprise) in the UK, the UK government set out a recovery plan to help small businesses obtain greater fluidity in the market. They have done this via collaboration with the Federation of Small Business through an initiative called Route to Recovery.
Under this initiative is a host of support packages including Enterprise Finance Guarantee, which is a government loan scheme (delivered by lending partners) which supports the availability of working capital for SME businesses. Provided set criteria are met, the government will provide a 75% guarantee to the lender, thus increasing lender confidence. The USA Small Business Administration SBA website provides initiatives and support for SME businesses in the USA.
There is plethora of small companies (known and less known financial companies) willing to offer finance, but like with anything on the Internet, a start-up entrepreneur and business owner needs to exercise caution before undertaking any financial commitment.
Pervin Shaikh - We all have the necessary inner tools in our tool box to make a huge impact on our personal and professional lives.
Join the Conversation