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What funding is available for pre-start businesses?

What funding is available for pre-start businesses?
Peter Beresford
Raising finance, Mentor
Find out more about Peter Beresford

In this article you’ll learn

In the majority of cases, when a business borrows some money, they have to start making repayments the following month. That’s not ideal if the business is still in the pre-start phase, and hasn’t yet started trading – how do they generate any money to make that repayment?

Even before the business is up and running, you may have expenses: research and development of your product or service, perhaps you need to pay for professional advice, coaching or mentoring. What are the options for businesses in this situation?

Start-Up Loans

These are available to businesses even in the pre-start phase. However, there does have to be a very clear plan and timescale to begin trading. They lend to businesses, not to ideas. Therefore, you need to have a definite plan as to when the business will begin trading.

Start-Up Loans are a government-subsidised unsecured loan. It is a loan, not a grant, and of course you have to pay it back, but the interest rate (6% fixed) is very attractive. The maximum amount is £25,000 per director or partner.

Find out more about Start-up Loans

Seed Corn Funding

Rather than a loan, seed corn funders will provide funding in return for equity in the business. So for example, they may be impressed with your plan, and invest £100,000 in return for 20% of the company. As an investment, this is considered very high risk – after all, statistically, a lot of new businesses do fail – and so an investor will be looking for high growth and a good return on their money.

Seed Corn Funding tends to be restricted to businesses that are high growth and in innovative high tech sectors. This type of investor is not interested in a business that grows at 25% per year, they want rapid explosive growth and a good financial return.

Crowdfunding can be a viable option for this type of equity funding as well.

Find out more about what funding is available using the funding finder

Grants

There are some seed corn grants available for research and development. Like the funding mentioned above, these tend to be restricted to research and development of innovative products and services. Something that’s not really been done before.

There are also several local authority grants that are area specific. For example, in rural areas, local authorities provide diversification grants to encourage the local economy.

Find out more about what funding is available using the funding finder

Creative England

This is an organisation which provides funding specifically to companies within the creative industries. For example, film production companies and other organisations within their supply chain, as well as the computer game industry. They provide interest free loans as well as some equity investment to projects within this sector.

Find out more about Creative England

Factoring

If you are a company which provides a product or service to other businesses, delays in receiving payments can be a problem and seriously affect your cash flow. Particularly in the early days of a business, that delay of say thirty or sixty days between sending your invoice and receiving payment can be debilitating. Factoring will allow you to draw funds against the value of those invoices straight away. This can be invaluable in the first few weeks, as cash flow is a particular problem.

Find the perfect funding, download our free eBook today!

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Summary

If you need to get money into your business before you begin trading, then there's no shortage of options available to you. Take a look at the article links to find out more about what's on offer.