The cost of finance
The right investment is crucial to the successful growth of a business, particularly in challenging economic times.
Whether you’re a startup or a mature organisation, one of the most important ongoing decisions is about sources of finance.
Debt and equity provide a way to develop products, services and technology, fund growth and survive challenging economic times, but both come with a cost.
Debt (such as loans and overdrafts) comes with the obligation to pay it back. The cost of interest can quickly spiral without due attention. There is no legal requirement to return shareholder equity, but company control can quickly be diluted. Often a good way forward can be a combination of the two.
However you choose to fund your business, the key is to ensure the financing strategy fits with your risk appetite and put regular reviews in place so you always have the right balance. Shopping around can help find cheaper options so you aren’t overpaying.
The ICAEW has published a great guide to the wide variety of options for business owners (opens as a PDF) that’s worth a look.
Alternative funding sources
Of course, debt and equity aren’t the only ways to get money into a business and to offset costs.
Access to finance can come in the shape of grants, voucher schemes and tax credits too. Successfully applying for what’s available nationally and in your region can make a huge difference to your company’s financial health and sustainability.
Industry bodies, independent networks, local authorities and Growth Hubs often offer funding and support outside Government-led schemes.
Entrepreneurial directors who have built innovation into their businesses have several possibilities. Some of the more popular current ones include:
· Research and Development (R&D) tax reliefs
If your business is working on a research and development project that aims to advance the areas of science and technology, you may be able to claim Corporation Tax relief. There are specific rules for SMEs, while larger companies can claim R&D expenditure credit (RDEC).
· Innovate UK Smart Grants
Innovate UK, part of UK Research and Innovation, offers funding for game-changing and world-leading ideas designed for swift commercialisation. Ideas need to be genuinely new and not just disruptive within their sector. According to the website, to take part in the current competition, which opened this June and closes in September 2023, projects of 6 to 18 months must have total eligible project costs between £100,000 and £500,000 and can be single or collaborative. Projects of 19 to 36 months must be collaborative and have total eligible project costs between £100,000 and £2 million.
· Innovate UK Future Economy Loans
Scaling micro, small and medium-sized businesses can apply to Innovate UK for innovation loan support with late-stage projects that will significantly boost the UK economy. Projects focused on future economy areas are of particular interest.
· Knowledge Transfer Partnerships
Knowledge Transfer Partnerships (KTP) are a potential route for organisations wanting to improve their productivity and competitiveness. The scheme connects companies with a university, college, research and technology organisation or Catapult and engages a graduate to lead the strategic business project. There are two types of KTP – the first is focused on developing new or better products and services and the second is a management KTP focused on enhancing processes and building management capability.
· Creative England Creative Growth Finance
Creative Growth Finance provides scale-up loans of £100k - £1m for UK businesses in the creative industries. Firms must demonstrate growth potential, be talent-led, develop new intellectual property (IP) and harness creativity with technologies.
If your business could benefit from a non-executive director who can help develop a future proof, differentiated market position that allows you to exploit emerging opportunities, manage risk, embrace innovation and navigate economic volatility, please get in touch.