Alternative finance for entrepreneurs and start-ups

3 weeks ago
P2P lending for Start-ups

Every entrepreneur is only too familiar with the struggle of raising finance to fund his or her idea. In the past this invariably meant a visit to the bank manager. Fortunately, things have moved on since and a bank loan is no longer the only way to raise money to fund a start-up business. Today, investors and entrepreneurs benefit from an ecosystem of options that can help turning a business idea into a viable model. Here are some of the most popular alternative solutions to raising finance for your business.

Equity investment
For some business ideas, particularly new riskier ventures, equity investment – raising capital through the sale of shares in a business – may be a worthwhile solution. Selling shares also means relinquishing total control in your company by allowing other interested parties a stake in your business. One question to consider is how much control you are willing to concede. On the other hand, it’s important to point out that the involvement of investors can also provide a wealth of advice and expertise, which sometimes can make a difference.

In the days of web 2.0 and social media it would only be a matter of time before someone created a platform and services dedicated to serving entrepreneurs. The answer was Crowdfunding. Platforms such as Kickstarter brought together entrepreneurs and investors thus creating powerful communities. Crowdfunding also extends beyond business. Regardless of whether you are a donor or an investor, one advantage of crowdfunding is that it puts people in control of their money and how it is used to affect the world around them, be that for financial return or simply out of a desire to make a difference. Find out more here.

Peer-to-peer lending
Another alternative solution is peer-to-peer lending or P2P lending. This option has been around for many years and it could help you to raise finance. Put simply, this is a process where a group of people come together to lend money to each other. It is a particularly popular solution for small business groups to support each other. The same notion can easily be applied to start-ups. Find out more in the Peer-to-Peer Finance Association.

Venture Capital Trusts
Venture Capital Trusts, or VCTs, also offer a potential financial pathway both to entrepreneurs and/or investors. VCTs offer investors with an appetite for risk the chance to invest in small firms to help them grow. As such, the UK government offers generous tax breaks to VCT investors. However, it is important to remind any interested parties that these are higher-risk investments and therefore require a longer term in comparison to more conventional investments.

One of the main advantages of VCTs is that they carry a 30% income tax relief on the initial investment up to a maximum investment of £200,000 a year; dividends are also free from income tax, and exempt from capital gains tax (CGT) on disposal. These benefits however are all dependent on investors leaving their money in the VCT for a minimum of five years as HMRC can reclaim the tax savings if the investment is held for a shorter time. As VCTs are government initiatives, your first port of call is the HMRC website, which contains a wealth of information on the subject as well as the latest updates.

Choosing the right type of finance will always be a challenge regardless of how many alternatives there are out there. What may seem right for one company might not be the best option for your company. Each option carries pros and cons that have consequences for the future success of your business. It is therefore important to research the details of each option carefully in order to make an informed decision. Whatever type of financing Sage is here to support your business with market leading cloud accounting software, to learn more about our cloud solutions visit here

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