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Computer says no? Bank alternatives for small business funding

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Trying to raise capital in today's climate can be difficult. We reveal the options if the bank turns you down.

The Government’s Funding for Lending scheme, launched to encourage lending to business, has not quite had the desired effect, with recent data showing banks are still sitting on cash piles.

However, if you are a small business owner or looking to start your own company and need funds, there are number of alternative options.

We take a look at what’s available for businesses at the smaller end of the scale:

Funding options – what’s out there in the UK?

• The Business Finance Partnership 

The Business Finance Partnership has two strands. First, the government scheme has six funds where the managers invest in medium sized businesses with a maximum turnover of £500m.

The second strand invests in non-traditional lenders that provide an alternative source of lending for small businesses with turnover up to £75m.

Prospective medium sized business borrowers should contact these funds directly here.

• The Seed Enterprise Investment Scheme 

If you have fewer than 25 employees, no more than £200,000 in gross assets, have not had any investment from a Venture Capital Trust (VCT), and plan on issuing company shares to raise money, this could be a suitable funding solution.

You can only raise up to the value of £150,000 – and that’s including other any State Aid.

• Start-up Loans Scheme

This scheme provides start-up finance and advice for 18 to 30 year olds. The scheme started last September and aims to provide £82.5m to young entrepreneurs.

It’s run by the Start-up Loans Company (a government-owned organisation) and offers young entrepreneurs money to start their businesses (seed capital) of around £2,500 each.

• Enterprise Finance Guarantee

Available until 2014-15, EFG funding is another State loan guarantee scheme to promote additional bank lending to UK-based small businesses that are viable, but lack enough security to secure a normal bank loan.

You can find out if you are eligible here.

• Regional Growth Fund

The RGF is available to support projects and programmes in areas and communities currently dependent on the public sector, in a bid to create private sector growth and employment.

Round four of bidding has just closed, however you can keep checking in with the Regional Growth Fund to see when the next round of bidding will be open again.

• Business Angel Co-Investment Fund 

The £50m Business Angel Co-Investment Fund aims to support promising businesses and help to develop the UK business angel market. It makes equity investments between £100,000 and £1m to SMEs in England, particularly in those areas hardest hit by public spending cuts.

Read more here.

• Enterprise Capital Funds

The ECF programme is intended to address a long term structural weakness in lending to SMEs in the UK.

The Department of Business, Innovation & Skills says that currently this gap is considered to be most severe in investments of under £2m.

The ECF initiative is designed to provide funding to SMEs that are unable to attract investment from venture capitalists or private investors.

More info here.

• European Regional Development Fund 

While this fund is aimed primarily at public sector projects, in some circumstances it can be used for investing in small businesses, particularly if they are in partnership with a public sector body.

More info here. 


Peer-to-peer lending – recently there has been a flurry of sites popping up on the internet enabling SMEs to get the funding they need from the ordinary investor.

Peer-to-peer lending sites match up savers, who are willing to lend, with borrowers – either individuals or small businesses.

Loan rates can be better than what the bank has to offer, but making sure you get the right amount of funding can be a struggle.

Which? members have rated the UK’s three biggest peer-to-peer lending sites – Funding Circle, RateSetter and Zopa – read the full review and a list of other peer-to-peer sites here.

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