Whether you become a sole trader (ie are self-employed) or set up a partnership or limited company, starting your own business is relatively simple, quick and inexpensive, which partly explains why so many people continue to do it. Last year, a record-breaking 581,173 new businesses were registered at Companies House. Per capita, more new businesses are started in the UK than in the USA.
However, the survival rate for new businesses remains low. About half of all new UK businesses fail within three years and 90% are gone within 10 years. And only 4% of start-ups achieve a million-pound turnover after three years. For those who survive the three-year test, achieving significant growth remains a huge challenge, with many small firms staying more or less a similar size.
Some small businesses are restricted by business models that can't be scaled, while others are run by people who simply don't have the know-how, experience, drive, vision or leadership skills to grow a business. Some businesses fail to attract the right people or find the right strategic partners to enable growth.
For most businesses, organic growth by reinvesting profits will only take you so far, usually at a much slower pace. Without doubt another reason why some small businesses fail to grow is lack of funding.
If you really want to take your business to new heights, external investment or funding can unlock the door. I co-founded ezbob in 2012 and since then funding from institutional investors and the UK government-supported Angel CoFund has enabled us to grow our business so that, alongside our sister company, Everline, we've now provided more than 6,000 business loans and lent more than £60m to fellow UK small businesses.
Business angel or private equity investment might not be available or preferable (not everyone wants to concede ownership or control in exchange for investment). Grants from public sector organisations exist, but they're few and far between.
You might think you could turn to your bank for a loan to help fund your growth ambitions, but there are no guarantees your application will be approved. That's partly why 'alternative sources' (ie not from banks) now supply 25% of lending to UK SMEs, according to an FT.com report in February, which also said that many smaller businesses are discouraged from applying for bank loans as a result of previous rejections or the cost implications.
The most suitable business growth funding option for you will be determined by how much money you need, when you need it, your turnover, whether you're prepared to put up any assets as security or concede any ownership or control. These are all key considerations.
Trying to grow a business inevitably involves some risk and it takes time and a lot of hard work, but the results can make it worthwhile. Above all, you need to ensure you get the funding you need to match your circumstances and ambition.
With the reduction in small business loans offered through high street banks in these times, news of a possible Coalition scheme to offer start-ups the financial break they need, may sound like a bonus to many bank managers.
Hopefully, the Tory business bank will be offering nice promotional gifts like high street branches of Lloyds, Halifax or TSB have to incentivise the customer. At the very least they could hand a silvery pen out of it as they sign your business up for more of the government’s borrowed money from the IMF.
Chancellor George Osborne’s claim that it is "all the alphabet soup of existing schemes” should spell “the Tory way of tidying away bitterly disappointing incentives one to one giant kid’s meal, the kind that lacks XYZ of investment capital for genuine high-street money lenders at a time when the UK economy is in recession, without beans”.
The UK economy has statistically been suffering under the weather from a cloud of uncertainty forecasted by the so-called ‘big-four’ high-street Banks. A sector-based approach is a new way in which the Tories can withhold currency and lending to the banks, while having a stronghold in the business investment market and sell assets to small businesses and provide them the breakthrough that has been waiting in the wind.
Ahead of the speech, at Imperial College, London, Cable said that there was a "real shortage" of the "long-term patient capital" needed by businesses to grow. Larger businesses were "by and large" capable of raising short- and long-term finance via capital and equity markets. Meanwhile, the latest SME Finance Monitor showed that in the last 12 months, 33% of businesses that applied for loans were rejected.
Maybe it is along the path but this is still only in initial talks, meaning that the government need to open a tin of beans on-cue and finalise on its structure and offering to selected sectors, choose smaller ‘challenger’ banks and non-bank sources to take on the so-called ‘big-four’ and perform more like a business.
When Vince Cable addressed the public, the follow up indicated that it could shop around to find the tin. Smaller banking providers such as the Co-op, German lender Handelsbanken and Aldermore, are all contenders. By and large Aldermore sound like front-runners. In March, they announced their intended participation in the Government's National Loan Guarantee Scheme (NGLS) providing small businesses to borrow at a lower rate. The partnership would, Cable said, boost these smaller banks' lending capacity as well as round up existing co-investment and guarantee schemes.
Hopefully, this would lead to relief from this financial gasp and finally you start-ups out there will have the power to fulfil your destiny and have the financial backing you needs.