Business and new launches are increasingly turning to different funding sources as banks tighten their purse strings, but do you understand the various options open to you? Here we look at one option, which is called crowdfunding.

In basic terms a crowd of people contribute towards an online funding target in return for a small stake in the business idea. Where one large investment may have proved too risky, in this model many smaller investors will hopefully be more willing to put in a lower investment eventually equalling the sum required.

There are things to be aware of such as the commission (around 5%) that you will need to pay the crowdfunding website once your target is met, and to attract investors you may be encouraged to offer incentives such as discounts or equity in the business. However, think about this. By having investors, especially those with a stake in your business, you will have a support network in place who will want to promote the business, possibly use the product or service and perhaps offer you their expertise. In addition, reaching the target not only gives you the required investment, but sends out a message that you have a good business idea which, combined with the fact you received your investment, makes a great news story!

A recent article on BBC news forecasts UK bank lending is set to shrink by 2.2% this year - the first time since 2009 according to the Ernst & young Item Club economic forecasting group. While banks are usually the first port of call (perhaps after friends and family!) for funding, there are other options.

 

East is a not-for-profit company providing loans of up to £50,000 to new and existing businesses with a workable business plan when they have been unsuccessful in securing bank funding or need additional funds to match lending. The finance can be used in a variety of ways to help expand the business. Click here for further information or contact us for an introduction.

In a recent blog we discussed how age is no barrier to starting a business with entrepreneurs in their teens up to the nineties starting businesses. The government has obviously been listening, well in part, as the prime minister, David Cameron, is believed to be looking at funding young people looking to set up in business using a student loan style scheme. The idea was first proposed by Sir Richard Branson as part of the Virgin Media Pioneers Control Shift campaign.

When asked about helping young entrepreneurs at a recent 'PM Direct' event David Cameron said, "There's a very good idea in there that Richard Branson has come up with and others have been looking at, which is that, okay, we are providing loans for students to go to university - why not look at something similar for people who have got a great business idea and want to get on and start that business? I think this is a brilliant idea and we are looking very closely at it. We might be announcing something like this later on."