By any assessment, the UK landscape for business finance is fragmentary. No business looking to scale wants to stumble along the way. Depending on the nature of that business, certain options will be more favourable than others. 

Three experts at the British Business Bank (BBB) – Senior Investment Director Mark Barry; Senior Director, Funds, Rob Greenwood and Chief Banking Officer, Products, Reinald de Monchy – have views on what will work for various scaleups. Fractional CFO Matthew Grimsdale FCA works with a diverse range of companies, from tech firms and medical-device manufacturers to alcohol brands, retailers and gym groups. They outline what aspiring scale-ups need to know about eight different funding routes.

1) Angel investment

Typically assisting businesses in their earlier stages, angel investors rarely have a direct role in the scale-up journey, but the foundations they lay – and their contact books – are immensely useful.

“Angels may step in as early as company formation,” Barry says. “Much of their focus is on people. The start-up’s product and market may pivot or change over time, but its core founding team is likely to stay the same and require guidance. Once your growth curve gets underway, venture capitalists (VCs) will focus more on your product and market.”

Greenwood notes: “Angels can help you demonstrate what’s needed to land that first round of institutional funding. They’re also extremely well connected. After that, each subsequent investor will help you reach your next milestones and proof points because there’s lots of stage specialism in the market.”

Barry highlights the UK Business Angels Association as a great place to start.

2) Venture capital

According to Greenwood, the pre-seed and seed stages are where angels and VCs tend to rub shoulders. After that, he says: “Each VC will articulate what they can bring to the situation, beyond just the capital.”

In other words, VCs will help companies maximise their market impact as they scale.

“Some are quite domain specific, with expertise in, say, financial services or climate,” Greenwood says. “Others are not so sector based, but may have lots of experience with helping companies understand what they must do to push themselves forward, whether that’s hiring, or evolving the product. There are different styles, but the objective is to provide meaningful support.”

Angels and even other founders can help owners locate VCs, Greenwood says.

3) Bank loans and overdraft facilities

Traditional lending routinely comes with risk-laden strings attached, Grimsdale warns.

“One hurdle you’re likely to face is having to make a directors’ personal guarantee, required for around 90% of applications, whether for loans, credit cards or overdrafts,” he notes.

On rare occasions, applicants for loans under £250,000 may get away without a guarantee, Grimsdale says. “However, I try to avoid loans and overdrafts as much as possible, as it’s unfair to require a guarantee against someone’s home or personal finances.”

4) Funding ‘disruptors’

Encompassing brands such as Funding Circle, Clearco, Uncapped and Stripe, funding disruptors have emerged from the fintech world as alternatives to traditional banks. Providers tend to focus on companies with ecommerce-based business models.

“I’ve recently used Capchase, which specialises in the software as a service sector,” Grimsdale says. “Disruptors can be very dynamic, often making a decision within 72 hours of you submitting management accounts. They’re trying to steal market share from traditional banks, which are considerably slower to decide.”

5) Growth Guarantee Scheme (GGS)

Administrated by the BBB, this scheme is channelled through 50 delivery partners across the lending spectrum. “It targets ‘deserving, but underserved’ borrowers,” De Monchy explains. “There are different reasons why a lender wouldn’t lend to a specific borrower. For example, lack of security, or lack of historical performance data.”

He notes: “Primary conditions of the GGS are that a lender must provide a loan on better terms that they otherwise would or provide a facility they otherwise wouldn’t. Another important condition is that the scheme’s benefits must be passed on to the borrower. If, as a result of the support that the scheme provides, the lender is able to lend at a lower interest rate, they must do so.”

6) Government grants

Access to government grants depends heavily on the applicant’s specialism, Grimsdale stresses, with only select industries receiving serious consideration.

“Two medical-device companies I work with have secured funds from Innovate UK and the Energy Industries Council,” he says. “Renewables firms and manufacturers are also favoured. However, the application process is extensive, involving many days – if not, weeks – of work. And the chances of success are extremely low.”

Businesses with a niche product in a defined ‘swim lane’ tend to succeed, Grimsdale says.

7) Crowdfunding

Capturing hearts and minds is the goal here, Grimsdale notes.

“Crowdfunding is a direct-to-consumer rather than B2B play,” he says. “You’re launching a product or service with such a strong, inbuilt appeal to your target market that you’re asking that very market to fund it.”

Alcohol brands that Grimsdale has worked with have used crowdfunding to support other types of finance. However, he warns: “Crowdfunding platforms can be expensive, charging 5% to 10% of funds raised. They also require lots of prospecting and admin.”

A prominent subset of crowdfunding is peer-to-peer lending, which involves seeking funds from clusters of high-net-worth individuals. Grimsdale says that some of those networks can be approached on LinkedIn.

This previous Insights article has more on crowdfunding as a business finance tool.

8) Private equity (PE)

By and large, Grimsdale advises, PE is not well suited to either start-up or scale-up firms.

“PE providers typically look for a large, established business that’s already generating healthy profits,” he says. “Once found, they will deploy capital to ‘sweat’ the asset, with the aim of achieving substantial returns.”

In exceptional circumstances, Grimsdale notes, “the provider would make more of a VC-style play towards an earlier-stage start-up or scale-up, where the innovation at stake is highly significant and the ambitions vast – potentially world changing.”