Start-ups have always found it difficult to raise working capital finance because they don’t have a long trading history. With increasing red tape burdens, more and more new businesses are finding that they are unable to attract traditional funding sources.

BANKS

Current situation

Many high street banks are reluctant to provide start-ups with funds through the Small Firms Loan Guarantee (SFLG) scheme. This is because the recent changes in the level of support available from the Department of Trade & Industry start-up support funds are dwindling in the UK today.

They are also reluctant to provide an overdraft facility without personal guarantees following the Spectrum and Brumark cases; they would now prefer to make personal loans to the directors of small business. The decisions made in the Spectrum and Brumark cases did not affect factoring and invoice discounting and has encouraged the proliferation of factors and discounters.

Since then, banks have been concentrating their efforts on pushing small firms to access funds via these services, which coincidentally generate a lot more profits for the banks than overdrafts, importantly only about 35% of businesses can utilise these facilities which has also reduced the amount of funding to new start business available.

The good news

There are some banks that are good at supporting new businesses. Lloyds TSB appear to be the most active in supporting new start up businesses at the moment, there seems to be little consistency in the banks’ policy over this though. Instead it seems that banks support new starts only when it suits the business model for that year.  

At the moment Lloyds are one of the few banks administering the SFLG effectively and they are putting business managers back into local branches, although there is some way to go before we reach previous number of in-branch support.

VENTURE CAPITALISTS, BUSINESS ANGELS AND OTHER CORPORATE FINANCIERS

Top tips

Meeting with corporate financiers can be daunting, but the impression you give will play a crucial part in how successful you are:

• Don’t overvalue your business, remember 50% of something that can be achieved with their help is better than 100% of nothing

• Try to target those with experience in your sector

• Listen to their advice; even if they don’t invest it’s always good to find out why

• Don’t be overawed when meeting them

• Make sure you’ve done your homework – go in there with a strategy and prepare for tricky questions

• Be honest – if you don’t know the answer don’t pretend you do

SHORT TERM WORKING CAPITAL FINANCE OR WAGEROLLING

Innovative, low risk offering

Wageroller offers a new and unique service for start-up businesses.   It pays a company’s wagebill up to the value of £10,000 over two months – essentially setting up a rolling credit facility for customers. From application to implementation it takes just three days. The only proviso for start-ups is that they have been trading for at least six months. 

The service offers new companies the perfect opportunity to gain additional funds when they need it most and requires no personal guarantees.  It is low risk and offers a critical boost in that vital first year of trading. As the businesses grow they can access the full Wageroller service which places no limit on the wagebill which that can be covered. 

LAST WORD

Finally, this is what I tell people starting their own businesses “it’s your idea, it’s your business just remember you don’t know everything and can’t do it all on your own”

Paul Breen is founder and Director of Wageroller.