Small Business Finance - what's out there?

Posted by Jackie Ledger on 19 January 2012 | 2 Comments

Tags: business support, business finance, business advice

One of the most common enquiries we receive at Business Builder is about funding for businesses.  Grants are still available but few and far between and your location in the UK and your business sector relates strongly to availability and eligibility.

A good place to start looking is on the Business Link website using their Business Support Finder service.

The Enterprise Finance Guarantee (EFG) is a government loan guarantee scheme intended to facilitate additional bank lending to viable SMEs with insufficient or no security with which to secure a normal commercial loan.  It is available till 2015.  For further details click on this link Enterprise Finance Guarantee

Alternative sources of funding exist outside the more conventional realm of the high street bank. However, many small businesses don't know this. There are a number of finance providers and mechanisms available to bridge the "finance gap " (problem with finding funding) that a small business might experience. These are often known as quasi-commercial providers (QCOM).

Micro-credit finance, for example, is a type of non-bank or informal finance. Usually it takes the form of a small loan to an individual or group of individuals who are in some way 'socially excluded'. The purpose of the loan is to help them to start a business or become self-employed. The largest provider of micro-credit finance is  The Prince's Trust Enterprise Programme, which provides an estimated Ł40 million a year, currently being generated by its activities, to support start-up businesses. Along with financial support comes a mentoring scheme (friendly, expert helpers).

Some micro-credit providers can form a formal or informal partnership with other funding organisations, public or private, to provide financial support. "One lender will match the funds of other lenders providing that at least one of the those other lenders has undertaken rigorous screening/investigation of the loan candidate (and incurs the cost of doing so)".

Other examples of quasi-commercial finance include social banks, which will only lend to businesses with clear social and environmental objectives while other organisations.  Take a look at  www.sel.org.uk which lists many organisations offering funding to co-operative or community-based enterprises.

In a survey by the Association of Chartered Certified Accountants (ACCA) in 2011, only 2 out of 103 SMEs surveyed - all with under 10 employees, a sales turnover of under Ł2.5m and from all industrial sectors - were aware of social bank loans.

There is also a new option for small and medium-sized businesses seeking funding to develop their operations, following the introduction of legislation on 8th January 2012 allowing credit unions to lend to them.  

Credit unions were previously restricted who they could provide financial services to, but are now able to choose to lend to small companies and other organisations, which may have been unable to access funding through traditional mainstream financial service providers.

The changes in legislation mean those struggling to start up, or those small firms who are struggling to survive due to cash flow problems, have a potential extra financial lifeline to help boost their business.  For further information go to British Association of Credit Unions