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A guide to new business investment

There are multiple ways to bring new finance into your business, and each has their own merits and drawbacks when it comes to deciding which option is best for you. To discuss the different ways you can secure investment, read our guide on new business investment below.

A guide to new business investment

Equity investment: Angel investment and venture capital.

Equity investment is the process of securing a large financial investment into your business in exchange for a percentage stake in your business.  A small business will be more likely to pursue angel investment for several reasons.

Angel investment is done by single “High net worth individuals” who can decide personally who to invest in and for how much. Where venture capital is more concerned with a rapid return of investment, angel investment is often referred to as “patient capital” as these investors are more willing to support the business and guide it with their own knowledge and expertise, reaping their investments back over a much longer timeframe. Angel investors also cannot take more than a 30% stake in your business, meaning that you still have autonomy as the owner.

With venture capital, the financial scope is far larger. It involves multiple people investing into a shared firm, and the money is then invested into businesses with high growth potential that the fund manager feels will guarantee a sizeable return on investment. Because of this focus on a return on investment, and the risk of a small business closing before they recoup their investment, venture capital firms are not as likely to invest in small businesses that bigger, already established businesses.

Debt investment.

Debt investment is different in that no stake in the company is given in exchange for financial investment. Debt investment could be seen as simple as a cash advance business loan. You are given a cash injection on the understanding that the amount will be paid back with interest over a c

ertain period of time.

Regardless of who provides the finances, a debt investment does not provide the lender with a say in your business. It does, however, mean that, should your business prove unsuccessful, your debt investors take precedence when it comes to recouping their funds in the case of bankruptcy. These considerations are likely to be the main factors when it comes to deciding on business finance: do you offer a stake in your business for a larger injection from someone willing to provide guidance and expertise, or chart your own path with a simple loan, leaving you in complete control of the direction of your business

Partnerships

An alternative method to securing business funding is to go into a partnership. In this case, you would register with HMRC as normal, but also choose a nominated partner. The nominated partner in this situation would be a silent or sleeping partner. Sleeping partners choose to simply invest finances into a business while forgoing any involvement in the day to day running. That is, an angel investor would be more focused on guiding a business and utilising their stake in the business to help it grow, while a silent partner will take a backseat and trust in the business to grow on its own merits thanks to the financial investment.

At any stage of your business, securing the right kind of financial investment to secure additional growth can be tough, as there are many considerations that need to be made at every step. Securing finance in a way that works for you is certainly something that requires a great deal of due consideration.

FSB Business Essentials provides business owners with a range of benefits and services, all with the aim of supporting and facilitating the continued growth of your business.

These services include access to:

  • FSB Cash Advance services
  • Independent Financial Services for advice and assessment
  • A dedicated help and advice line
  • Payment services
  • Networking support

To find out more about how you could benefit from FSB Business Essentials, get in touch with a member of the team or visit our FSB Business Essentials page.