Filling the Funding Gap for Start-ups and SMEs

The number of new business start-ups registered with Companies House increased by 8% in 2013 based on the previous year and seems set to continue throughout 2014.

Although these figures seem promising for start-ups it’s important to remember that three out of four new business fail, according to research conducted by the Harvard Business School.

Funding issues are often the most common causes behind the failure of a business. Research published by Money & Co states the funding gap for SMEs in the UK currently stands at £4.3 billion which equates to an average of £11,752 for each small business and £69,961 for every medium sized business.

This can not only mean potential failure for new SMEs but can also threaten future growth which is a vital part of increasing the value of an enterprise, according to business brokers Avondale. Therefore without funding a business may face the rather unappealing prospects of failure or stagnation.

As both venture capitalists and banks have been less open to lending to start-ups and SMEs since the financial crisis, what is being done to fill the funding gap?

Existing measures

In an effort to pump more money into UK enterprises the government have backed the Start-Up Loans initiative. This scheme provides entrepreneurs with repayable loans and also a business mentor – the latter of which is of particular importance as 70% of small businesses who receive mentoring survive for 5 years or more.

Start-up Loans

So far the scheme has provided backing to 16,837 enterprises, which is equivalent to an impressive 42 businesses a day. However the average amount loaned is £5,517 – less than half of the average deficit faced by small business and just under 8% of that for medium businesses.

The Start Up scheme describes their aim as:

“…designed to go some way to help solve the problem of supporting people who have a feasible business idea but no access to finance.”

As the lending scheme is geared towards those with just an idea, what is available to those who already have an enterprise in its early stages?

With banks and venture capitalists treading on investment egg shells it would seem that expansion for existing SMEs may be solely dependent on their business performance, which in turn is limited if funding hasn’t been available to support the growth needed to facilitate increased revenue.

A new approach

To tackle the abyss that businesses face between starting-up and becoming stable, a group of investors have created a new funding platform.

Including investors behind brands such as Moshi Monsters and Innocent Drinks, QVentures is an online members-only initiative that will offer funding expected to be worth around £25,000 a year. The members from the new platform say they created this modern take on a private investment club in order to fill the “equity gap” in the current market.

Q Ventures Introduction

There is a catch, however. The number of members signed up to the scheme is being capped at 1,000, so enterprises looking for funding will have to move quickly.

This platform echoes wider calls to provide businesses still in the early stages with additional backing to help them to grow.

Although one new venture capitalist platform won’t be the end to the call for further funding for SMEs, it’s arguably a good start. The need for an increase in funding support for those running a promising enterprise that needs a financial leg-up to flourish has been highlighted – from here we can hope that others follow in the suit of QVentures, however perhaps with an approach that is a little less exclusive.

via Business 2 Community http://ift.tt/1jxRFKe