fund

Inevitably you may, at some point now or in the future, need to fund your idea. But here poses the question where to go? The beauty of lovemyidea.com is to let the money come to you. All we ask is for certain information linked to your profile. 

Types of funding:

There are primarily four different types of funding available to UK businesses.  Each type has different characteristics and is used in different situations.  A brief explanation of each is as follows:

1) Grants – mainly provided by the government for specific projects/purposes, often needed to be matched by spending from the applicant.  Widely acknowledged to be ‘the cheapest form of money’ as it usually does not have to be repaid.  Please click here for the Business Link website giving further details on grant funding.

2) Debt – Low risk, low cost funding primarily provided by banks.  Debt is simply a loan, which has to be repaid over a set term upon which interest is charged.  Usually it is secured against other assets in a business. The different forms are described below:

• Overdraft – repayable on demand, but flexible.
• Term loan – debt with a specific repayment period, eg 5 years often secured against a specific asset.  A mortgage is a good example of this.  Often provided as a % of the value of the asset it is secured against.
• Other Asset Finance - a term loan secured by specific assets
• Factoring – Money is ‘borrowed’ against the debtor book of a customer.  The factoring provider usually administers the debts and their collection.  Provided as a % of the debts borrowed against. Flexible, like an overdraft.  Especially of use to businesses with growing sales, however may cause difficulties for businesses that do not have growing sales or have large seasonal swings in sales. Usually used for very small businesses who have limited administration support.
• Invoice Discounting – Similar to factoring, however the business collects the debts from customers themselves.

3) Mezzanine – A specialised but increasingly common form of funding, primarily used in special situations such as larger management buy-outs.  It is a half way house between debt and equity funding which has a higher cost than bank funding, but is cheaper than equity finance. 

4) Equity – High risk funding with a high return and cost.  This is used where firms cannot secure the funding they need through the lower cost options (eg debt) because they cannot provide any/enough security for a bank or where the project itself is inherently high risk (eg a start up business).  The higher cost of equity compensates the provider for the increased risk of losing all their money.  Equity is usually in the form of shares that mean the provider owns shares in the business and shares the risk. 

Equity can come from a number of sources:

• Friends & family – usually smaller amounts (up to £25k).
• Business Angels – wealthy individuals who often have a portfolio of investments.  They typically provide form £25k up to £250,000 and up to £1m in syndicates

Venture Capital Funds – professional investors who invest from £100k to multi-millions.

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