Ireland Trade and Trends

 World Trade Centre Dublin

A Brief Guide to Financing Your SME

Funding Options

The three main types of finance for most businesses are:

  • Debt: Funds acquired through borrowing cash from an external source; typically a bank.                                                          
  • Equity: Selling a stake in your business in return for cash to help support your business in the early stages
  • Cash: Financing a business though the owner’s own savings or money from friends, family or gained through grants from government agencies.

Debt

Borrowing from a bank is the most conventional form of debt finance, with the “golden rule” of borrowing being to match your type of finance to your intended need. With a short-term loan being used for a short-term need and a long-term loan being used for a long-term need. See more on this in the Think Business guide on three ways to finance your business.[1]

Getting a business loan can be a simple process if you make sure you’re prepared for it. The first step in this process if it hasn’t been done previously is creating a business plan. This is a process that should not be overlooked and is a key factor in making sure you are ready to take the steps to start a new business. Realistic and relevant financial forecasting can help make sure that you get the bright amount of funding you need from your bank. ThinkBusiness.ie provides a handy guide for those considering getting a business loan, see it here[2]. They also provide a business plan template for those looking to make the first step in starting their business[3].

Microfinance Ireland currently offers small loans for start-ups and SMEs, whether you need a bit of extra cash to establish your business or just to cover daily expense. These range from €5K - 25K, with different loan packages[4] covering business of various types, from start-ups to established businesses or indeed those looking for a little bit of cash for expansion. These packages come with free mentoring, while this bonus primarily aimed at start-up customers, this is also available in all loan packages provided by Microfinance Ireland.

Please consult the EU Access to Finance – Loans for further information on acquiring debt finance.[5]

Equity

If you’re not opposed to selling equity in your company as a funding option, approaching an angel investor may be your best option to kick-start your business. These investors can also be treated as an asset in itself, with an experienced angel investor not only providing finance, but also guidance and credibility for your business. This type of equity funding is typically suited to businesses that require smaller investments than would be typically provided by a venture capitalist.

Venture capital funding is suited to businesses hoping to raise significant sums of money in return for a reasonable stake in the company. These kinds of investments would typically be €500K or higher and therefore the business would need to have a relatively high potential in order to qualify for this type of large equity funding. In many cases the credibility granted to a company backed by venture capitalists boosts and accelerates a business in the early-stages and so can negate the downside of giving up a stake in the company.

Seed capital funding ranks somewhere in between the two types of equity funding discussed already. It is typically for early stage companies. This could typically be provided by institutions like banks or regional investment bodies.

Links to Various Equity Sources for Irish Businesses:

Cash

Cash is definitely the preferable option for funding a business, but of course not everyone has the cash readily available to invest in a new business. Despite this, some cash funding could be still available to most start-ups through government supports.

Did you know there are currently over 170 different Government supports for Irish start-ups and small businesses? Find out which support is for you using this online guide[6]. Or check out this synopsis of over 50 business funds, grants and supports described by Think Business for businesses in Ireland[7].

Emerging Funding Options

Crowdfunding has seen a boom in recent years, but this is not just limited to the latest tech devices or aspiring musician. Crowdfunding is a low risk way of raising funds without having to part with Equity, while also being way to get noticed by an angel investor or venture capitalist, who could take your funding to a new level. One of the biggest success stories in recent years was the rise of Oculus (a virtual reality company founded by inventor Palmer Lucky) from a Kickstarter page[8] to being bought by social media giant Facebook for $2bn[9]. Of course, this may not be the case with all crowdfunding campaigns; the majority of campaigns don’t reach their targeted goals, but at the same time it can also be a good way of raising cash to get the ball rolling on an idea that has a lot of potential as well as an effective way to judge the potential of your business idea. Of course don’t expect your service-based business to get off the ground with a crowdfunding campaign; these campaigns tend to suit sectors like music, technology, consumer goods, media and arts more so.

Useful Resources for Early-Stage SMEs

In the initial stages of creating a business plan you should already be thinking about your finances and completing a cash-flow spreadsheet is an integral part of this stage of your business plan. With that in mind, this simple cash-flow template[10] should help those of you in that positon in planning your finances effectively.

Tax is a crucial factor when considering business finance, that’s why start-up and early-stage SMEs should know how best to organise their business and prepare their tax affairs. With this in mind ThinkBusiness shows us their does and don’ts for this in their Top tax tips for businesses as can be seen here[11]. They also give a handy guide noting the various tax reliefs available for Irish start-ups, you can see that here[12].

Other useful resources that will help you save money:

 

Finn Kenny

Customer Success Manager 

WTC Dublin

 

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