How to Identify Different Sources of Financing for Your Small Business


The range of sources of finance for the smaller firm seems to in­crease every year but in spite of that there is inevitably a chorus of voices from the small business sector that the money is never actually there in reality when it is needed.

One of the reasons for that situation has usually been that the funds talked about were available mainly in large slices which were unsuitable for the small firm. The deficiency tended to be for sums of money of less than £50,000, below which it is not usually economic for conventional sources of capital to operate.

One of the interesting features of the last year or two has been the way in which attempts have been made to fill that gap, attempts which have come from both the private and public sectors.

Finance

In the private sector Rank Xerox pension fund, for example, established a link with the London Enterprise Agency and Tyneside Enterprise Agency, Entrust, under which the agencies manage £500,000 from its special investment fund for small companies. Investments made can be up to £50,000 in any one company and is intended for companies at an early stage in their growth. A number of investments have been made and the agencies have been encouraged by the numbers and range °f projects offered to them.

The involvement of enterprise agencies in assessment and monitoring is the factor which makes investment on this scale of value to the providers of finance and it is significant that another major company which has long been a strong supporter °f the small business sector, Shell UK, has taken this route with tts enterprise loan fund.

Shell has provided a total of £500,000 which has been allo­cated to enterprise agencies in Cardiff, Bolton, Newcastle upon Tyne, Falkirk, Belfast and London, to distribute in loans of up to £5000. The decisions on who gets the money are made by the agencies.

The majority of the Shell funds are intended for young people between 16 and 25 but older people starting up or expanding an existing business are not excluded.

In the public sector the running has been made by local authorities and often the enterprise boards which they have es­tablished in setting up loan funds to provide relatively small amounts.

One of the most remarkable features of the small business scene lately has been the explosion of assistance offered by local authorities to entrepreneurs.

The government is currently directing more of its attention to improving existing schemes and reducing the bureaucratic bur­dens on business rather than in devising new schemes.

The venture capital field continued to expand with a sharp rise in the value of investments made by venture capital companies – though many of them are now tending to be rather cautious as they wait to see the performance of their earlier in­vestments.

And it is not only the venture capitalists who are looking at performance; government too is looking for some results from the efforts made in recent years to encourage smaller firms. The banks are also anxious to see an improvement in the perform­ance of the companies receiving finance and are interested in encouraging small business managements to improve their skills, particularly in areas such as financial management, a per­ennially weak area.

Small Business

Small business owners do not necessarily want to use the funds available to expand their businesses, as recent research produced for the Small Business Research Trust by a leading academic, Dr James Curran of Kingston Polytechnic, indicates. He found that most small business owners in fact opted for a ‘steady state’ business ‘perhaps only too aware that rapid growth could undermine their independence and autonomy and take them out of their depth managerially’.

The concentration on survival rather than learning and developing the techniques, financial and otherwise, which would help them to grow has also been noted in a very compre­hensive survey of manufacturing firms by another academic, Dr Alan Hankinson.

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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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