Tag Archives: loans

What the Hell is a CDFI?

In a speech today the Business Secretary Vince Cable praised the work of CDFIs and the CDFI referral scheme currently being run by the British Bankers Association. He did, reportedly, qualify his praise somewhat by stating that “nobody knows what the hell you do”.

Vince Cable quoted on Twitter

CDFI stands for Community Development Finance Institution. They are typically foundations, charities, government agencies or small local banks. Their aim is to lend money to people who cannot get finance from the mainstream banks. Often they focus their activities on disadvantaged communities or sections of society. They will often lend money to people with little or no security and in amounts too small for the mainstream banks to consider commercially viable. According to figures from the Community Development Finance Association (CDFA) CDFIs lent £23 million to 1500 businesses in 2010/2011. This resulted in the creation of 712 new businesses and 2168 new jobs. 55% of this money went to new start-up businesses. 46% of these businesses were Sole Traders and 36% were ‘micro-businesses’ with less than 10 employees.

Business loans from CDFIs

The purpose of Vince Cable’s speech today was to announce a joint venture between the government, The Co-operative Bank and Unity Bank which will channel £60 million of funding towards CDFIs. The CDFIs will then forward the money onto small businesses in their local areas. If you want to take advantage of CDFI funding for small businesses and start-ups the CDFA provide a Finance Finding service.

3 Reasons Why Young People Should Not Start Their Own Business

The job market for young people is pretty dire at the moment. Graduates are struggling to find meaningful employment. Working for free for months on end has now become a standard requirement for many entry level jobs.  For those already saddled with student debts this is often simply not an option. For many young people these are fairly desperate times.

People from all over the political spectrum are coming up with the same solution. Young people should not invest their energy in getting a traditional corporate job. They should start their own business and create their own job instead. People on the political right see this as an exciting new era of individual capitalism. People on the left tend to see it as the only viable option and as a way of building new communities.

At the same time that the political debate is agreeing on the need for young people to start their own businesses they are being incentivised in this direction more than ever. The Princes Trust have been funding businesses for young people for years. They have now been joined by prizes sponsored by Shell, initiatives from Virgin and a range of government loans.

So while there is increasing consensus that young people should start businesses, and increasing funding if they want to do it, should they?

3 reasons why young people should not start a business

  • You are likely to fail. Even on conservative estimates 30-40% of start-ups are unsuccessful, over 50% of companies don’t make it past 5 years.
  • You probably already have thousands of pounds of debt to repay. Can you really afford to take on more, especially if you fail?
  • If you do fail, and need to get a job, you will not have the relevant experience and internships with blue-chip companies that box ticking HR drones will be looking for. You could end up in a worse place than where you started.

If you have come out of school or university and there are no jobs to be had then starting your own business may be worth investigating. With the various competitions and loans currently available you are even likely to be able to raise some funding. But if you are going to go down this route than you need to do so with your eyes open and be aware of the risks.

How to find start-up business grants, loans and investments.

Start-up business funding sourcesThe biggest single problem facing start-ups is getting funding. While it is possible to get start-up business loans from the high street banks they are not easy to come by. With a bit of digging round and filling in of application forms it is often possible to assemble a decent amount of starting capital through a combination of loans, grants and investments.

If you are under the age of 24 then there is a fair amount of funding available. Three good places to try are:

The Princes Trust offer grants for training and for schemes which benefit the community on a regional basis.

The Government’s new Start-up loans are also aimed at young people up to the age of 24.

Shell Live Wire offers monthly awards of £1000 to young people starting their own businesses.

For people over the age of 30 there are far fewer funding options and they are much harder to track down. A good place to start is the government’s Business Link Finance Finder.

The Business Link Finance Finder is a searchable database of grants and loans at the time of writing it listed over 300 different sources of funding available to start-ups.  Examples of the kind of funding available include the New Enterprise Allowance which provides money for the long term unemployed to start businesses or the Be the Boss scheme for ex-servicemen. As well as sources of funding the Business Link Finance Finder has details of lots of schemes providing free office space, mentoring or other support for new start-ups.

While many regional schemes are listed on the Business Link Finance finder it is worth contacting your local council and regional branches of the Federation of Small Business and Chambers of Commerce. All of whom can be good sources of information on locally available funding.

The money that government used to distribute to new businesses through the Regional Development Agencies is now being fed through Capital for Investment. This is a process of giving government money to private businesses who are then expected to give it to start-ups and small businesses. Often this is through matched funding or through ‘alternative’ funding methods such as factoring. Some of the Capital Investment fund gets channelled through what used to be the Early Growth Funds into regional groups (now also run by private companies) who manage various investment vehicles. Exactly how the funding works will depend on where you live in the UK. The whole infrastructure of government funding for start-ups and SMEs is being re-organised at the moment so it is a case of keeping your eye on the main Business Link website for announcements.

Much of the money that the government now offers is not in the form of grants but is enabling private companies to take risk free stakes in start-ups. If you would prefer to cut out the middleman and go straight to the source of the funding then the British Business Angels Association has lists of angel investor groups who are willing to put money into start-up companies. The BCVA also have a list of their venture capitalist members. In both cases receiving funding will be in exchange for a small proportion of the company (think Dragons Den).

The trendiest way to raise money is through crowd sourcing. You simply have to find a crowd sourcing website, pitch your idea and wait for the cash to roll in. Some business have raised vast sums of money through this method but it is relatively new and untested. Crowd Cube, seedrs and  Kickstarter are three of the best known of the dozens of crowd funding platforms currently competing for funding.

The process of getting business funding is complicated and requires a lot of hard work and dedication but there are funding sources out there. Often a combination of funds will be needed with some personal saving, a couple of grants and a few small loans. Because of this it is important that you have done your business plan and research effectively so that you know exactly how much money you are going to need and how you are going to pay  it back.

Business Start-Up Myth – It’s hard to get a bank loan

business-start-up-financeAnother business myth that often rears his head is to do with business start-up finance. People say it’s hard to get a bank loan to start a business. This myth is reinforced by recent research carried out by the IoD which suggests that 60% of directors have been rejected by banks when seeking finance yet clearly this is not always the case. Many people rejected by bank lenders have no form of guarantee or little equity. Shoddy business plans might well be to blame also.

With the current state of the economic climate, the new coalition Government are keen to encourage the banking sector to lend more freely to SMEs and business start-ups. Pressure is mounting to give financial support to the small businesses in the UK which are the life blood of the economy.

Bank loans for business start-ups

Getting a bank loan for a new business start-up might not be a difficult as you imagine. With a well drawn up business plan and the proper company documents, as well as some form of equity, banks will be far more willing to lend to new businesses. More often than not, new limited companies find it far easier to gain finance than any other form of business as lenders are far more willing to invest in this legal structure. Consider carrying out a company formation to start your new business to make the most of this and other advantages of limited companies.

Finance alternatives

New businesses should bear in mind that bank loans are not the only avenue for business finance. There are plenty of alternatives, some easier and some harder ways to acquire finance, each with its own merits. Take a look at our previous article “Top 10 ways to fund your new business” for more information. Government grants, factoring and regional growth funds are just a few examples. If you are willing to let others get involved in your new business, you may also want to think about venture capitalists and business angels.

Business Finance – Top 10 ways to fund your new business


Starting any new business requires finance of varying levels. If you’ve got this far then you probably already have a business plan and a good working idea of how much money you need to get started. The question is do you know how you’re going to get your hands on that money? There might be more avenues open to you than you think.

  1. The obvious ones:
  2. There are a number of ways of raising finance that you might have already given thought to. This includes raiding your savings, maxing out the credit cards, borrowing from friends and family or perhaps even cashing in early on your pension. Each has its own merits and pitfalls. The most obvious being the flexibility, the limit you can borrow this way and the dangers of getting out of your depth with loved ones.

  3. Bank Loans:
  4. The next most common choice for finance, bank loans can be taken out over long or short periods with varying interest rates; these are perfect for funding purchase of assets, with a price tag of less than £500,000. Of course, banks require security or a guarantee and these loans can present a cash flow burden.

  5. Business Grants:
  6. Grants can be obtained for business growth from the government, the European Union and local authorities. However, in most cases, grant funding comes with strict and specific criteria. There will also be strong competition for their award, which can provide a significant hurdle for most businesses.

  7. Factoring:
  8. This is a financial transaction where a company sells its invoices to another business at a discount. This other business then seeks payment of these invoices from the debtor. Factoring allows swift acquisition of finance which can be used to fund business growth. The obvious downside being the loss of value of the initial invoice.

  9. Venture Capitalists:
  10. Finance may be acquired by seeking investment from a venture capitalist. This sort of investment can take up to 6 months, but allows you to benefit from a wealth of experience and potentially up to £2 million finance.

  11. Business Angels:
  12. Similar to venture capitalists, business angels are wealthy people seeking to invest in growing businesses. They usually have less money to invest, but can do so more quickly and also provide skills and experience to the aspiring entrepreneur. The downside here is they may want a say in how your business is run.

  13. Solutions for Business:
  14. “Publicly funded business support products and services designed to help businesses start, grow and succeed.”

    Government funded support for new businesses which provides help in a number of areas. For example, providing finance where banks have refused to or providing a guarantee where a business has none. These are available through Business Link.

  15. Small Business Research Initiative (SBRI):
  16. Funding is provided here for specific products which could help government or public sector problems. Not a grant, but a fully-funded contract between the business and the government which can lead to a 2 year contract and £1 million investment.

  17. Federation of Small Business loan:
  18. The FSB provides its members with access to discounted loans, financial advice and more. With all areas of commercial finance covered. Membership of the FSB is a necessary requirement.

  19. Selling shares:
  20. Going “Public” and selling shares of your company on the stock market is another way for a business to make money. It’s only open to Public Limited Companies and it does mean that you reduce control of your business, but for some it is a viable option to raise finance.