Cash is KING. If your dream is even marginally past the glass ceiling in the UK e-commerce market, at some point you’ll need to devote your full effort to the endeavour. Even if you don’t need money to live on while you build your brand, your brand will need money to take its first breathes of life.
A some pivotal point, nascent start-ups and the individual talents will need to make the leap from moonlighting and bootstrapping their organic business growth into the phase of a thriving brand. This needs to be a short transition, or you won’t make it.
You need the cash to implement your launch strategy in the shortest amount of time. This is why cash is KING.
I like Paul Graham’s of Y Combinator, start-up cash strategy. “A typical start-up goes through several rounds of funding, and at each round you want to take just enough money to reach the speed where you can shift into the next gear.”
So if you haven’t broken down your start-up strategy into manageable, obtainable and sequenced short term goals, you should do it right away to understand how much capital you truly need to complete your first goal and get traction with customers.
Many are confused about the terminology surrounding funding for start-ups. If you truly need the money to develop an idea that is the fundamental core of your new business, then you are looking for Seed Round Funding.
Angel Round Funding comes after Seed Round Funding, so for the moment, please park your dreams of a large monetary cash sum pegged on your suave presentation charisma and your 10 slide power point presentation. Think first about ‘proof of concept.’
‘Proof of Concept’ is road testing your idea in your slice of the marketplace. However minimal your service or product offering is, get out there and sell it. If you found your gap in the market and it pours money, then you have proof that you can make money on it. At this point you and your partners still own all the equity of your business, have a trading business and a way to determine valuation.
It is wise to establish a trading business before giving away a sizeable chuck of future worth to an Angel. Why not boost your confidence and work out the brand kinks with a start-up business loan to backup the valuation and give your brand a position of negotiation for your Angel Round?
So, how much money do you need for your SEED ROUND of funding? If is under £10K then it is possible to obtain a line of credit attached to your business banking account and your interest rate will be anywhere from 10.5% to 17%.
If the high street banks think you are too risky to invest in, there are two UK start-up lending sites (AKA investor-to-entrepreneur or peer-to-peer lenders) that find Angels of all varieties and they will broker a loan for you at a lower rate than the high street banks.
These are the non-bank business loan options I’ve found operating in the UK.
ONLINE CREDIT BROKER SITES IN THE UK
#1
YouAngel.com is “an internet based social lending community where people can lend money to small and medium-sized businesses, sometimes referred to as peer-to-peer (P2P) lending.” – www.youangel.com
Insights: Your minimum loan amount at YouAngel is £25,000 and your fixed interest rate will be between 6% and 10.5% depending on your credit rating. You’re loan will be between 6months and 3years.
YouAngel asks you to pitch your business cash-flow sheets for the past two years with future projections along with what your brand is offering and what you need the cash for. This is online pitching to Angels and there will be genuine questions asked by the Angels, but if you need more than £25,000K, this may just be the lender for you.
(I was invited to join by one of the founders late last year and as far as I can tell, no loans have been given to date, but don’t let that deter you from trying it out.)
#2
Zopa.com “Zopa, one of the sector's pioneers, enables people to bypass the banks by lending money to other creditworthy people at rates that they agree between themselves. This, it says, enables both borrowers and lenders to get a far better deal than they would get from a bank.” – This is Money
Insights: Trading since 2005, it has been mentioned that Zopa will not leave a footprint on your credit rating just for inquiring. Loans are offered for up to £15,000. This may be your least expensive option if you haven’t been trading for two years, but you’ll need to prove income for loan repayment and a trustworthy credit history. You’re loan will be between 3years and 5years. www.zopa.com
#3
FundingCircle.com is “an online marketplace to help businesses find low cost loans quickly and investors get better returns.” – www.fundingcircle.com
Insights: Funding Circle’s loan customer will need two years’ worth of official accounts filed at Companies House and is looking to qualify for growth capital between £5,000 and £100,000. There average loan interest rate is 8.4%, but if your pitch is good, the rate could be bid lower.
Around the world : There is Prosper in the U.S., Smava in Germany and Communitae in Spain who have similar lending offerings.
My advice is read all the fine print of each lender. Make sure you have a viable plan for paying your loan back and you are truly committed to your business. Good Luck.
