Anyone who knows us knows that there’s nothing we love more than someone with a bit of an entrepreneurial knack and the ability to see the potential in even the most simple of things.
It was only last year we found ourselves smiling at the efforts of the eBayer below (click the image to enlarge), but today it appears we have come across someone who is clearly cut from the same cloth as our snow-selling peer.
A gentleman from Ohio by the name of Zack Brown enlisted the help of the world’s largest crowd funding platform, Kickstarter, in an attempt to raise some capital to create a potato salad.
Not a restaurant selling the food type or a business manufacturing the seasonings, just a solitary potato salad.
When Brown started his ‘venture’, the bar wasn’t exactly set very high with a fundraising target of just $10 being set (a particularly low amount considering most successful crowd funding projects raise amounts into the tens of thousands) but it seems the internet had other ideas.
At the time of writing this, Zack Brown’s potato salad has raised an amazing $44,102, and there are still 22 days left to run. Needless to say, we’ll definitely be keeping an eye on this one.
Amongst all of this though, it did get us thinking that there are a number of businesses out there whose products and services don’t rely on potato salad, yet they are still unsure where to turn or what to do when it comes to funding. Therefore, we thought we’d take a look at the different types of finance on offer.
There are obviously quite a few avenues to take with funding, so we’re covering 4 options on here today and 5 options tomorrow.
How can I fund my business (or potato salad)?
Traditionally the banking sector has been the major source of funding for business requirements and this continues to be largely true today. The benefits of approaching your bank are that they should already have a good knowledge of your business and so would be comfortable in lending to you. Additionally, bank finance tends to be at the cheaper end of the scale in terms of charges and interest reflecting the downside fact that banks don’t tend to fund anything that they perceive as risky.
This route is often used to bolster working capital in the form of an overdraft or short term loan and as a rough rule of thumb a profitable business could probably expect to get an overdraft facility at a level of c10% of turnover, although of course every case will be measured on its own merits.
Timescales to funding are not necessarily quick with 4 – 6 weeks being an optimistic view which is synonymous with the long reporting and often remote lines for credit approval.
That said, your bank is probably the first place to enquire when looking for funds due to cost and the perhaps look to top up any further requirement form other sources.
Enterprise Finance Guarantee scheme
Banks will often require some form of security before offering a funding facility, be that over the assets of the company or via personal security from the shareholders.
The government recognised that not all businesses had sufficient assets available to meet this security requirement and that this was effectively blocking small firms gaining access to bank funding.
In order to combat this, they introduced the EFG scheme which effectively offers government backed security to the value of 75% of any default on a business. This provides the banks with the comfort that they require to lend to businesses previously ruled out for a lack of security.
Loans can range from £1k to £1m with terms of repayment between 3 months and 10 years available dependent upon circumstances.
You can find more information on the Enterprise Finance Guarantee scheme here.
At the polar opposite of the scale is the apparent personal favourite of barbecue and picnic lovers across the world, crowd funding. Also known as peer to peer lending whereby a business’ request for funding is matched by a number of individuals pledging often small amounts to meet the total in aggregate.
Each lender will have their own specific interest rate with those at the lower end preferred to those at the higher once the funding limit has been reached.
Whilst interest can be 3% – 4% higher than bank finance there is a major benefit in that timescales to funding can be dramatically cut and in some instances money can be in your account within 7 days of application.
You can find more information on crowd funding here.
Secondary tier lenders
Secondary tier lenders exist to fill the gap where banks cannot assist and the inflated cost of this type of borrowing (c10%) reflects the slightly riskier nature of the lend.
Sedulo work hand in hand with a number if such providers of finance and many are regionally focussed with the aim of bringing or expanding growth or employment in that area.