There are a whole host of different business funding options out there, one of which is to seek the backing of an investor.

Before you approach an investor, it’s important to dig into the details of what they’re looking to get from a business partnership. Get to know your target investor first so you can go to them with a tailor-made pitch that appeals to their own goals and interests.

Once you understand what motivates an investor, you can then figure out what you’re going to offer them in return for their contribution to the growth of your business.

What to offer in return for investment

While other forms of business funding, such as lenders, provide money on the provision that you repay what you borrowed with added interest, investors are typically looking for more.

Investors generally want to make their money back by owning part of your business in some way. In a limited company this normally involves them owning some of the shares, also known as an equity investment.

How many shares do I need to give an investor?

This really depends on how much of your business you’re willing to offer or how much you can afford to give. You’ll also need to work out how much to ask for!

If the investor is a personal connection or somebody who is particularly interested in your business venture, they may be willing to accept a much lower percentage of equity. That can be great if you’re only looking to secure a cash injection, but it’s worth considering what this really means.

As with a lot of things in life, you often get what you pay for. Offering sums of money for a small number of shares may suggest you’re potentially dealing with an inexperienced investor.

Offering more equity generally opens doors to a higher calibre of investor who can offer experience, advice, and networking opportunities as well as cash.

What issuing shares means for your business

When you give shares to an investor in exchange for equity in the business, you don’t need to make regular repayments (like you would with a bank loan, for example). This is because shareholders receive dividend payments from the company’s available profits, so they only see a return on their investment if the business does well.

This is good news for your cash flow because you can simply use the money invested to continue growing your business until you make enough profit to pay dividends.

The downside is that now you’ll have to share the benefits with someone else! It can also make things more complicated if you plan to sell the business, or invite new business partners on board.

Will they have any control over the business?

Issuing shares is not the same as making someone a director, so the level of control they have in the business depends on what their shares entitle them to do, and any agreements that you make separately.

If a shareholder owns more shares than you, they could potentially have the power to remove you as a director.

Other benefits to offer investors

An investor will be looking to make money via return on their investment. Being offered shares in your business is the most compelling way for them to go about this.

That said, there are other things you can offer to an investor to make your potential business partnership an attractive option for them and to help you stand out from the competition.

An investor needs to be as sure as anybody can be that you’re going to make them money, but they will also need to know that working with you will be a positive experience with as little risk as possible.

Here are some other things you should be able to provide to a prospective investor to help seal the deal:

A detailed business plan

You’re going to need a solid business plan boxed off before you approach any investor because they will use this as a way to get to know your business better. Your business plan should tell the story of your business so far and its plans for the future.

• Your Unique Value Proposition (UVP): An investor will want to see your market analysis, how you stand out from the crowd, and why customers will choose you over your competitors. After all, more sales hopefully mean more profit (if the business is performing), which inevitably leads to a better return for them.
• Financial forecasts: These demonstrate the potential for profit and scalability, helping investors understand how likely they are to see a return on their investment – and when. Your projections should be as realistic as possible so you can manage expectations and maintain a good relationship with your investor. They will also need to see that your valuation of the business is realistic and attainable.
• Growth plans: Demonstrate how you are going to use the investment to grow the business and increase your revenue. This should include some key milestones you aim to reach and when, so that the investor can see you have an actionable plan in place.

This should also include some information about your risk mitigation strategy. Clearly acknowledge potential challenges you might face along the way and demonstrate how you will avoid or address them.

An accountant can help you create accurate financial forecasts so you can demonstrate growth and strategic repayment plans, and your investor might see you as less risky if one is involved.

Performance data

Anything you can provide that shows your business has a bright future ahead of it will be advantageous when pitching for investment.

Your financial forecasts should cover things like gross profit margin, revenue growth and net income. You could also consider detailing other things like:

• Monthly recurring revenue
• Churn rate (the rate at which you lose customers)
• Customer acquisition costs
• Liquidity of the business (i.e. the amount of ‘liquid’ cash available)

Exit strategy information

You could also consider including some details about possible exit strategies for an investor, although this isn’t entirely necessary. This could include options such as selling their shares back to the company in the future, or the business being sold.

Commitment and transparent communication

As well as the hard data outlined above, an investor is going to want to see some desirable soft skills too. Things like motivation, commitment and transparent communication are all critical for a successful business partnership.

 
Looking for more expert business support? Head to our info hub for more news and helpful resources.

The post What Can I Offer to Investors? appeared first on The Cheap Accountants.

Some people are in a position to bootstrap their business, which means getting it off the ground and growing it without any external investment or capital, whereas others consider a variety of funding options to help them start and scale the business.

Loans are often the first port of call for business owners looking for a cash injection, with several different types, such as traditional bank loans, online lenders and government-backed lending initiatives.

Whichever type of business loan you decide to pursue, the application process is critical – a strong application is key in securing any kind of funding, so keep reading for some helpful guidance. You can also talk to your accountant about your loan application.

Applying for a business loan

The specific steps and processes might vary depending on the type of loan you choose and the lender you’re applying to. Here’s a simple step-by-step guide to mastering the general loan application process.

Check your credit score

Before you do anything else, check your credit status. If you’re a sole trader then there’s no legal distinction between you and the business, so your personal credit score will be just as important.

Limited companies are a separate legal entity so lenders will often take both your personal and business credit history into account when reviewing your loan application – particularly if it’s a very new business without much historical info to refer to.

If your credit score is poor, now would be a good time to take measures to improve it. This will help make you more appealing to lenders as you will become a lower risk to them.

Determine the purpose of the loan and how much you want to borrow

Lenders will want to see a loan application which is well-considered and comprehensive in its explanation, so it’s important to start by defining the aim of your loan application; what do you need to borrow funds for?

Understanding this will both help support your application, but also help you choose what type of loan to apply for in the first place!

Identify the type of business loan you need

Researching the different types of business loans on the market will help you match up with a lending facility that meets your aims. Compare things like interest rates and repayment terms too, to help you find the best deal.

Check your eligibility

Once you’ve identified the type of loan you’d like to apply for, now is a good point at which to assess your own eligibility. The last thing you want to do is waste time, energy, and resources on putting an application together for a loan that you won’t qualify for.

Polish your business plan

Any potential lender will want to see that you’ve got a plan in place to grow the business and be able to pay back what you owe, so a detailed business and financial plan is the most effective way to demonstrate this.

Make sure to include financial projections, details about your business, and market research to demonstrate a sound knowledge of your industry and your position within it.

You should also calculate how long you predict it will take you to pay back the loan (including added interest) and present this as part of your projections.

Collate financial documents

You will need to provide various financial documents as part of the application process, along with your business plan and the application form itself, such as:

• Bank statements
• Cash flow statements
• Tax returns
• Profit and loss statements
• Balance sheets

Secure your guarantees

Some lenders will require you to provide a personal guarantee. This is a legally binding agreement where you select somebody to cover your loan repayments with their own funds if your business defaults. You may also be required to provide information on assets that can be used as collateral if you can’t pay back the money.

Submit the application and wait for approval

Once you’re satisfied your application ticks all the necessary boxes, you can go ahead and submit it. Then, it’s just about waiting for the lender to review your application and assess your creditworthiness, and evaluate your business’s financial stability.

Once that’s done, you’ll either get notice of approval or notice of rejection. Some traditional banks will require in-person meetings as part of the loan application process.

How long will it take to get a business loan?

This entirely depends on factors like what you’re applying for, how much money you want to borrow and how long you plan repayment to take.

If you’re applying for a loan from a bank which you already have a personal or business bank account with, for example, the process will probably be quicker.

In some scenarios, the loan application can take just a couple of weeks, for others it could take a few months.

What if a business bank loan application gets rejected?

The reality is that not every loan application you put forward is going to get the response you want. Common reasons for refusing a business loan application include:

• A low credit score
• Cash flow limitations
• A concerning ratio of debt to income
• If you work in a high-risk industry
• Low business asset value
• Insufficient time in business
• A low-quality or incomplete application

You might still have other options if your business loan application is refused, such as:

• Crowdfunding
• Small business grants
• Angel investment
• Venture capital
• Peer-to-peer lending platforms
• Online lenders
• Credit unions
• Business overdraft
• Community development financial institutions (CDFIs)

You might even find that these alternative routes to funding give you more flexibility than traditional business loans.

The importance of accurate bookkeeping

It’s important to remember that most business funding options, including loans, are treated as a form of income. Plus, any repayments will qualify as a liability.

This means you need to make sure you’re recording loan income and repayment outgoings in your bookkeeping for accurate financial reporting.

Meticulous bookkeeping will also support you when it comes to demonstrating to loan providers that you will be able to pay them back – and how. This lowers the risk of lending to your business and increases your chances of loan application approval.

Find more tips and advice for your business on our website, or learn more about hiring an accountant.

The post How Do I Apply for a Business Loan? appeared first on The Cheap Accountants.

If they can’t raise the funds themselves, some business owners rely on loans and other forms of financing to keep things ticking over and moving in the right direction.

That’s why, if a business loan application is denied, it can cause feelings of panic and frustration. We go over some of the most common reasons for business loan applications to be refused, and what your options might be if this happens to you.
 

Why has my business loan application been refused?

Some of the most common reasons that business loans are rejected include:

• Poor (low) credit score: Your credit score demonstrates how creditworthy you are to a lender. If your credit score is low or you have damaged credit, this will be off-putting to a lender who wants to be as sure as possible that they can recoup their money.
• A high debt-to-income ratio: If you are in a great deal of debt or owe significantly more than you are earning, this will often be a major red flag for lenders
• Cash flow limitations: Some lenders will require a specific threshold of annual revenue to mitigate risk for themselves
• Insufficient collateral: Some lenders will require a minimum value in business assets which, if needed, they can then use to try and recoup what you borrow
• Insufficient time in business: Some lenders will stipulate minimum time-in-business requirements. These can be anywhere from six months to over a year.
• High-risk industry: There are some industries and sectors that lenders deem to be high-risk. These include agriculture, construction, and gambling, amongst others. If you are operating in a high-risk industry, securing business loans can be tougher.
• An incomplete application: Some applications are turned down because the form is incorrect or doesn’t provide all of the necessary details or documentation. You might need to make sure your business plan is realistic, too!

What to do if a business loan application is refused

If you’ve applied for a business loan and it has been rejected, it’s perfectly normal to feel disheartened and even a little stressed out. It’s okay to feel this way when things haven’t gone to plan, especially where your business and finances are concerned.

It’s not to say that future applications you submit will be rejected too, but you might need to take action now so you’re in a better position for the future.
 

Get to the bottom of the rejection

First and foremost, reach out to the lender who rejected your application to find out why you have been refused. Lenders are normally required to provide justification for rejecting an application, and this information will be super useful to you.

Once you have a better idea of why you were refused a loan by a lender, you can use this to make necessary changes and improve your chances in the future.
 

Put measures in place to boost your credit score

If it’s your credit score hindering your ability to secure a business loan, this is something you’ll need to address. In fact, maintaining a healthy credit status is important whether you’re actively seeking funding or not, so don’t wait until it becomes a problem to do something about it.

The most effective ways to improve your business credit score include:

• Making sure your personal credit score is good
• Settling existing debts and settling all outstanding payments
• Ensuring you always pay your bills on time

You could also review your credit report on a regular basis so you can identify and rectify any errors promptly.
 

Assess your overall financial situation

After addressing your credit status, it’s time to put your general finances under the spotlight to see where improvements can be made to remove things like cash flow limitations or debts.

Working with a financial advisor, accountant, or consultant might be useful too, helping to identify areas which need attention.
 

Finding other sources of funding

Traditional banks aren’t your only port of call where lending is concerned, and you might also look into a range of funding options:

• Peer-to-peer lending platforms
• Online lenders
• Credit unions
• Community development financial institutions (CDFIs)
• Business incubators
• Crowdfunding
• Grants
• Angel investment
• Venture capital

These types of lenders will most probably have different (more flexible) criteria and be more willing to work with businesses that don’t necessarily tick all the boxes traditional banks require.

One of the biggest benefits of non-traditional forms of funding is that they are typically far more flexible than traditional means. This often includes faster and more lenient approval processes and repayment terms.

That said, interest rates are sometimes higher when it comes to alternative funding, so there are pros and cons to weigh up.

Looking for more expert business support? Head over to our info hub for more news and helpful resources.

The post What Can I Do If My Business Loan Application Is Refused? appeared first on The Cheap Accountants.

Our guide goes through five of the most common financing options for businesses. We’ve also listed potential pros and cons of each, but these might vary from business to business.

Business bank loans

Around 30% of UK SMEs have a bank loan or overdraft, according to the British Business Bank.

The amount you can borrow, along with the terms and interest rates vary massively, so always do your homework. Like personal loans, business loans can be unsecured, or “secured” against an asset.

It’s important to remember that if you don’t keep up repayments on a secured loan, you could end up losing the asset it’s secured against.

Unsecured loans are less risky for you, but riskier for the lender, so you may need some form of payment guarantee. Interest rates on unsecured loans are also often higher.

Pros:

• Usually fairly quick to set up
• You keep full control of your business
• Fixed repayment rates so you know exactly how much you’re paying back every month

Cons:

• Late or missed payments will incur charges that increase your monthly repayment
• If you default on a secured loan, you risk losing your assets
• Banks will make checks that could affect your credit report. You could also really damage your credit report if you don’t keep up repayments.

Small business grants

There are lots of schemes run by both public and private agencies across the UK offering grants to businesses of all shapes and sizes.

The main draw of a business grant over a loan is that it doesn’t have to be paid back. But knowing exactly which grants are available, what the criteria are, and how to apply can be a bit of a challenge!

A good place to start is your local council or the Find Government Grants page of the Gov.uk website.

Pros:

• Grants don’t have to be paid back, so no debt
• Many grants come with some form of free mentorship, giving advice and support about running and growing your business
• Your credibility could get a boost as it shows potential customers and investors you have a serious business that’s worth investing in.

Cons:

• You’ll likely find there are some restrictions on what you can and can’t spend your grant on
• Many grant providers split their funding across several businesses, so you might not end up with the full amount you were hoping for. Competition for grants is always pretty stiff too.
• Some grant providers will only give you a grant if you can match it with your own money to invest.

Crowdfunding

Crowdfunding is where you pitch your business idea on a crowdfunding platform like Crowdfunder or social media and ask customers or investors to invest in you. Typically, rather than a few investors who contribute a large amount, you’ll end up with a large number of investors investing fairly small amounts each.

Pros:

• It’s a great way to start building a loyal following, where investors can get involved right from the beginning
• It’s usually very easy (and cheap) to set up
• Crowdfunding can mean you raise the funds you need really quickly, particularly if your campaign goes viral
• You can set your own funding targets and change them as needed.

Cons:

• Crowdfunding is all about effective marketing which can require a lot of time and effort to get right
• When it comes to crowdfunding there really are no guarantees. Even if you put together a super-duper campaign, it might not catch on. Plus, if you don’t hit the target, you may have to pay back any investors.

Angel investment

Think of the TV show Dragon’s Den here! Angel investors are usually successful, highly experienced investors at the top of their industry. Win them over and you could end up with a sizeable investment in your business (although yes, they tend to want to sizeable stake in it too).

Once you’ve pitched your idea to an angel investor, and the investor likes the look of what you’re offering, you can negotiate what they get in exchange. Which is where it can get a bit eyewatering.

Pros:

• An investment doesn’t normally need to be repaid like a lone does (although some investors will offer a buy-back option, where you can buy the shares back in a few years).
• Securing an angel investment doesn’t require the payment of any charges or fees
• This is the chance for some serious kudos. Angel investors are usually well known in their field which can really boost your credibility (helping to attract more investors later)
• The knowledge and experience your angel investor brings can make a huge difference to your success, particularly when it comes to plans for growth.

Cons:

• Angels expect to play an active role in your business, with a big say in how their investment will be spent
• Investment is usually made in exchange for a stake in the business, which means less for you.

Venture capital

Venture capital (VC) is similar to angel investment but instead of investing their own money into a business, venture capitalists will invest on behalf of venture capital firms. This means the money itself can come from a number of sources, including public and private pension funds, corporations, foundations, and wealthy individuals.

Venture capitalists are also looking to invest much larger amounts, often into the millions of pounds. This means they’re only really interested in businesses with extremely high growth potential in fast-paced areas.

Pros:

• As with angel investors, VCs bring with them a huge amount of knowledge and expertise to delve in to
• No need to repay the investment
• Access to a substantial amount of funding

Cons:

• Like other forms of investment, Venture Capital investment means you own less of your business
• Pitching is seriously hard work and competition is tough. Your pitch needs to be really polished with a solid business plan behind it
• Some companies can’t scale up as fast as a VC wants them to so it’s best to be market-ready with a highly tuned product or service.

Don’t forget, most funding options are a form of income, and any repayments are a liability – so you’ll need to show them in your bookkeeping! Find more tips and advice for your business on our website, or learn more about hiring an accountant.

The post What Funding Options Are Available for my Business? appeared first on The Cheap Accountants.

In fact, finding reliable guidance is key no matter what stage your business is at, because scaling and growing are every bit as crucial as the launch itself.

There are certainly lots of places you can explore to find this support; friends and family, business loans, grants, crowdfunding campaigns or investment—just to name a few. Another option you could explore is becoming part of a business incubator programme.

Business incubators are a great way for fledgling entrepreneurs or start-up owners to access all kinds of invaluable resources, from money to advice.

However, some people avoid exploring them as an option as they’re not really sure what a business incubator is, how it all works and what they have to offer.

In this blog post, we’ll look at what these business development programmes are, and what support you can access.

What is a start-up business incubator?

A business incubator is a programme that provides new start-ups and early-stage business ventures with vital support. They help open doors for new business owners that they might otherwise find difficult to break through.

Types of business incubator can vary, with lots of different programmes designed to nurture specific industries and sectors. This is important to remember when deciding on the right incubator for your business.

In general, however, start-up incubators can help facilitate anything from access to office space and financial support resources, to things like expert workshops and introductions to investors and mentors.

The precise nature of the support a business incubator provides depends largely on what issues that particular programme sets out to solve.

What does a business incubator usually offer?

There are some issues or obstacles which are universal for business start-ups, no matter what their niche or specialty. So, whilst some business incubator programmes might include additional support for a specific industry, there are some general themes.

Low-cost working spaces

Organisers of an incubator programme will often provide new business owners with access to discounted co-working spaces. This helps keep your initial operating costs down, and can even help you to expand your network in the process.

Education and training

Workshops, training, and various educational sessions are an integral part of business incubation. They can provide fantastic opportunities to learn from those who have been there before.

Access to a network of mentors

Being part of an incubator programme will often put you in touch with mentors from a variety of business backgrounds.

Recent research revealed that some aspects of running a business can be more complicated than new business owners expected, so a mentor can help you approach new situations or plan ahead for them.

Routes into potential funding

Participating in an incubator programme can help a business look appealing to prospective investors. In some programmes you might also have access to funding such as grants, loan schemes, and even investors who might be willing to offer financial support as you start up.

Relationships with other start-up business owners

You will meet other entrepreneurs along the way and build your network of contacts and friends. These sorts of relationships should never be underestimated in the world of business!

Discounted rates for services

This isn’t a given with all incubator initiatives, but some do provide access to discounts on various services, such as accountancy or legal support, for example.

How does a business incubator programme typically work?

Business incubators are there to encourage entrepreneurialism, so they’re often offered by universities to graduating students looking to take the next step. You can also find schemes through local councils, government departments, or other business groups such as the Chamber of Commerce.

It’s always worth researching in detail precisely what a particular incubator programme is offering to its participants so you can make sure you’re enrolling in one that’s right for you. Think about where your start up needs support or what guidance it needs most, then decide which incubator(s) you’d like to apply for based on that.

Top tip: Read testimonials and case studies or reach out to past programme participants to glean some insight into how they found a programme. This will give you a good steer on how it might benefit your own business.

Do I have to apply to be part of a business incubator?

Yes, in order to take part in a business incubator programme, you will need to go through an application process. In many cases, you’ll be interviewed as part of this process.

Can I be involved with more than one incubator at a time?

This will be at the discretion of the programme organisers. Some will permit you to be involved with multiple incubators simultaneously, while others might stipulate that you aren’t. Our advice would be to focus on one at a time, that way you can give it your all and get the most out of it.

How much does a business incubator cost?

A lot of business incubators are free to use, because they’re often funded by government or commercial initiatives of some sort. There are other similar accelerator initiatives that might charge things like services fees, or ask for stakes in your start-up, but where non-profit incubators are concerned this isn’t standard practice.

How long is a business incubator programme?

There’s no one-size-fits-all answer to this question because the duration of business incubators varies massively. As a rough guideline: these types of programmes can range between anything from a couple of months to four or five years.

What is worth noting here is that once you’re accepted onto a programme, you will be expected to invest the necessary time into it—something you’ll need to consider before committing to anything.

Find more help and advice for start-up businesses in our online hub, and find answers to tax questions to help you get started.

The post Can a Business Incubator Help My Start-up? appeared first on The Cheap Accountants.

A crowdfunding campaign often focuses on a particular product or service. For instance, raising money to fund the manufacture of a new product, or to rent a location for a particular service.

There’s often an incentive to encourage backers, and this can vary wildly. Ranging from handwritten notes, early access to the product once it’s made, or mentions on social media, incentives can even include a share of the profits.

An example of business crowdfunding

A successful mobile dog grooming service has grown to the point where it now needs the deposit for a business premises to expand its operations. Rather than going to the bank, the business owners set up a campaign on Kickstarter, a popular crowdfunding platform, to raise the money they need.

The owners circulate the campaign around their personal and professional networks to raise awareness and attract donations. They also promote the campaign through the local newspaper and social media groups with a local focus.

To encourage more backers, they offer a discount on services to those who donate over a certain amount. The discount is offered on the basis that it’s used within a particular timeframe, and only if the campaign reaches its target. (And that’s an important point that we’ll come back to).

The benefits of crowdfunding for a growing business

In short, crowdfunding helps businesses access funding from friends, family, professional connections, and the wider public, rather than financing through bank loans or investors. There are several advantages to this, such as:

• Avoiding the headache of applying for traditional bank loans (as well as the pressure of repayments).
• Negating the often stressful and time-consuming process of pitching to investors.
• Enabling friends, family and other people who care about the business, owner, or both, to contribute to its growth.
• Minimal upfront fees or ongoing costs, which also means significantly less risk. Crowdfunding platforms typically take a percentage of what you raise.
• It can be a great way to get your product or service in front of more eyes. Lots of backers go on crowdfunding sites actively looking for businesses or projects to support…
• …which means it’s also an effective way to gauge interest in what you’re offering and the appetite for your product or service in the market.

Just be aware that some crowdfunding platforms have rules which mean if you don’t hit your fundraising target, all the money is returned to the backers. Check the terms and conditions before you start!

Do you have to pay tax on money raised through crowdfunding?

Although the money you raise through crowdfunding might feel like extremely generous donations, that’s sadly not quite how HMRC see it. Crowdfunded money might feel like free cash but in the eyes of the law, it isn’t – nor is it a loan or a donation.

This means you must report any money you receive through a crowdfunding campaign because HMRC usually classes it as taxable business income. How you do this depends on whether you’re set up as a limited company or a self-employed sole trader.

• As a limited company you will need to record any crowdfunding income on your Company Tax Return and pay Corporation Tax.
• If you are a sole trader, you will need to record it on your Self Assessment submission and pay any income tax due.

This is relatively simple, but things can start to get a little more complicated when Value Added Tax (VAT) is added into the mix.

Do I need to pay VAT on crowdfunding income?

The reason things become a bit more complex where VAT is concerned is dictated by the kind of incentive you offer in exchange for crowdfunding investment.

Some incentives have an intrinsic value, such as merchandise or an exclusive product, whilst others have symbolic value, such as a mention in a blog or on social media. If the reward has an intrinsic value, then there’s a ‘supply’ for VAT purposes.

When the money is an advance payment

If you offer a physical reward (such as merchandise) in exchange for backing, the money you raise is classed as an advance payment. For VAT-registered businesses, this means that the crowdfunded money is part of your VAT taxable income, and is included in your VAT calculation.

When the money is considered a donation

If someone donates without the expectation of a reward, then it’s not subject to VAT. Likewise, if the incentive that you offer has a symbolic value. So, if you put on a concert and mention the backer in the programme, it’s a symbolic reward, and not liable for VAT.

Things to consider before starting a crowdfunding campaign

Now you’re more clued up on where crowdfunded cash stands in terms of tax and VAT, you might be feeling more inspired to kickstart your campaign. Before you do though, here are some things you should consider first.

Have you got the time and resources to market it?

Crowdfunding campaigns are only a success when it reaches people en-masse, and this requires significant investment of time and energy into marketing and promotion. So, before setting up a campaign, it’s essential that you have the resources available to support this.

Is your Intellectual Property (IP) safe?

The whole concept of a crowdfunding campaign is that your business idea reaches as many people as possible and drums up as much financial backing as a result. Consequently, your product or service is going to be exposed to large numbers of people – quite possibly including your competitors.

That’s why it’s so critical to make sure your Intellectual Property (IP) is well protected before you share your hard work with the world.

Is it really the most viable financial option for you?

Crowdfunded money is classed as business income by HMRC. This means that any money you make will contribute towards your VAT taxable turnover and VAT bill. If you’re not yet VAT-registered, the crowdfunded money will take you closer to the threshold (£90,000 in a rolling 12-month period) that will require you to register for VAT.

Crowdfunded income also has the potential to push you into a higher tax band if you’re a sole trader, or will be subject to Corporation Tax if you’re running a limited company. On the other hand, you can often offset the costs of the campaign as an allowable expense.

If you’re struggling to decide which route to go down to seek funding for your business, then speak to an accountant. They’ll be able to help you weigh up the pros and cons of your options from a neutral perspective, with the best interests of your business growth and financial health in mind.

Good luck with your crowdfund!

Get help with common accounting questions using our guides, or get an instant quote for accounting services online.

The post Will I Be Taxed on Money That I Crowdfund for My Business appeared first on The Cheap Accountants.

The Decline of the SME Overdraft

The report by online business finance market Funding Options revealed that the value of small business overdrafts is falling by £100m a month. While SMES were still borrowing £12.1bn in bank overdrafts at the end of March 2016, this represents a 13% decrease from September 2014’s figure of £14bn – and a massive 42% drop from the £20.9bn owed by SMEs in April 2011.

So why the decline?

Post-Credit Crunch Caution

While some SMEs are undoubtedly turning to alternative lenders – a market that has widened due to concepts such as crowd funding and peer lending – there is still a strong demand among SMEs for bank funding, says Funding Options CEO Conrad Ford. He blames post-credit crunch caution for the decline.

“The fact is that banks have to question the logic of extending overdrafts to this section of the economy. This is not so much about small business’ ability creditworthiness – this is purely a result of how banks are being forced to operate post-credit crunch. Given that overdrafts are unsecured, with no set repayment terms, they have fallen out of favour with regulators. Banks are cutting their exposure to them in response.”

And if banks are cautious about granting overdrafts, Mr Ford warns that small business owners should be equally cautious about relying on them.

“Even the most successful small businesses are at risk of their overdrafts being cut with almost no notice. The problem for small businesses is that it is relatively easy for overdrafts to be withdrawn: the comparative lack of formality as opposed to a loan, for instance, means that access to an overdraft is not set in stone.”

With this in mind, small business owners would be well advised to make sure they don’t rely too heavily on their overdrafts – and maintain them at a manageable level.

The post The Rise and Fall of the Small Business Overdraft appeared first on The Cheap Accountants.

The funds behind peer-to-peer business loans come from individuals or organisations who ‘invest’ their own money, so that it can then be lent to businesses. Usually, this happens via an online platform, sometimes using a crowdfunding model – and new P2P (or ‘P2B’) platforms are springing up apace.

Not all platforms lend to businesses, concentrating instead on loans to individuals. But below is a selection of those that do:

Funding Circle

Funding Circle was launched in 2010 and claims to be “the UK’s biggest peer-to-peer business lender.”

·         Loan amount: £5,000 to £1m

·         Loan term: 6 months to 5 years

·         Application time:  “As little as 20 minutes.”

·         Response time: within 48 hours. Funds are normally available within a week.

·         Amount Lent So Far: £1.1bn

ThinCats

ThinCats launched in early 2011 and provides peer-to-peer secured business loans. It “links experienced investors with established business borrowers to provide a serious alternative to high street banks” and only chooses “high quality, low risk lending opportunities.”

·         Loan amount: £100,000 to £3m

·         Loan term: 6 months to 5 years

·         Application time: As long as it takes to formulate an email that includes your company name and registration number, a brief description of your business, how much you are looking to borrow, what the loan is required for, your company website URL and the contact details of the principal borrower.

·         Response time: Potential borrowers are only accepted if they have the support of a Sponsor “willing to put their reputation on the line.” The Sponsor must review the borrower’s bank account, the security available and the borrower’s ability to repay before writing a report similar to one a bank might produce before deciding to grant a loan. This process usually takes three or four meetings.

Amount Lent So Far: £155,881,000

Funding Tree

Launched in 2014, Funding Tree claims to be “the only online platform that has been designed to help at every stage of a business life cycle.”

·         Loan amount: £10,000 to £100,000 unsecured; £100,000 to £1m secured

·         Loan term: 6 months to 5 years

·         Application time: 15 minutes to create your ‘pitch’

·         Response time: Unclear

·        Amount Lent So Far: Unknown

Assetz Capital

Launched in 2013, Assetz recently claimed to be the “fastest growing peer-to-peer lender in the world.”

·         Loan amount: £50,000 to £2m, depending on security type

·         Loan term: Flexible

·         Application time: Unknown

·         Response time: A Fast Offer letter can be produced “within five days of the application pack and due diligence being completed”, and you may be able to get a “decision in principle” within 24 hours, based on the initial details you provide.

·         Amount Lent So Far:  £80 million

The Rebuilding Society

Launched in 2012, The Rebuilding Society claims it’s “passionate about providing access to funding for UK SMEs.”

·         Loan amount: £25,000 to £300,000

·         Loan term: 6 months to 5 years

·         Application time: ‘within 15 minutes’

·         Response time: Most decisions are made within a week, and funds are usually available within 2-3 weeks.

·         Amount Lent So Far: £9.3m

FundingKnight

Launched in 2012, Funding Knight describes itself as “an established crowdlender, blending modern finance with traditional values.”

Loan amount: £25,000 to £1 million

Loan term: 6 months to 5 years

Application time: An online application will be responded to within one working day and followed up with a telephone interview.

Response time: Average time from the initial application to delivery of funds to your bank account is 1 month, but if your paperwork is well-prepared, it may be faster.

Amount Lent So Far: Unknown

Each platform varies in the amount and type of security they require and the rigour of the vetting and approval process. There are also different interest rates, terms and conditions to consider. If you’re interested in this kind of funding, ensure you investigate your options thoroughly and as ever, keep an eye on the small print so that you know exactly what’s expected of you and your lender.

The post Peer-to-Peer Business Lending: Who’s Up For It? appeared first on The Cheap Accountants.