Woman business owner leading a meeting
  • Raising Finance
    • Starting Up

Funding your future

  • 3 min
  • Article

How can early-stage entrepreneurs nail their funding journey? HSBC UK colleagues and leading entrepreneurs share the best approaches to securing the right funding for your business.

The funding journey for early-stage entrepreneurs can be challenging. However, there are lots of potential avenues to secure the financial backing your business needs. From preparation to relationship-building, there’s some important steps all entrepreneurs should consider before taking the funding plunge.

Prove your business is viable

Having a good idea is not enough to secure funding. Proving your business can survive and succeed – even through difficult times – is key to convincing a bank or an investor to back you. Think about what funding you’re asking for, where the money will be spent, relevant industry competition, your trading performance, and whether you’ll be able to repay any loans.

For example, many early-stage or smaller businesses will rely on a key supplier – and have no breathing space when it comes to cash flow. If that supplier raises their prices, or geopolitical events affect the supply chain, then the business could be at risk.

The key to proving viability is to step back and assess your own business objectively. Remove emotion and think about your own operational efficiency. What risks are you asking banks or investors to take?

Understand what funding best suits your business

There’s a difference between bank funding and venture capital or private equity investment. Venture capitalists invest in high growth businesses typically underpinned by some technology. Their focus is on drastically scaling a business, aiming for an significant return on investment in a matter of years. For early stage, high risk businesses looking to scale at speed, VC or private equity finance routes could be a good fit. But most businesses are not venture worthy.

Often, start-up entrepreneurs don’t realise the range of suitable bank products available. As businesses that manage public money, banks must act as responsible lenders. Banks will take less risks, but will focus on loan repayment rather than a return on investment. While you’ll need to pay interest on a bank loan, this is usually significantly less than the equity share lost through private funding routes. In the long run, business banking can prove a better fit for lots of businesses.

What is environmental sustainability?

Environmental sustainability involves the conservation of natural resources and protection of the planet. When considering this from a business perspective, environmental sustainability concerns the relationship between a business, its product or service, and the planet.

To measure this effectively it is important to take a step back and look at the wider picture. Environmental sustainability includes, among other areas, your business’ greenhouse gas emissions, energy efficiency, water usage and recycling approach.

The best starting point when measuring sustainability is to focus on your direct emissions (known as Scope 1 and 2 emissions). These are caused directly by the activities and operations of your SME, through owned or controlled sources – things such as the heating in your office, or company vehicles.

Once regular assessment of your Scope 1 and 2 emissions has been established, it might be time to progress to measuring emissions caused indirectly by your business.

Indirect emissions are often referred to as Scope 3 emissions, these include your overall supply chain and product lifecycle. They address questions such as, how far a is product travelling from manufacturer to distributor. How much energy is used in the manufacturing process? What emissions are you responsible for, but causing indirectly? Scope 3 are often harder to measure but they can be highly significant to your overall emissions profile.

What is social sustainability?

When a business considers social sustainability, they should think about the impact the business has on people: customers, external stakeholders, employees and local communities.

Increasingly, SMEs are taking a more proactive role in managing their social responsibility, and commitment to social justice. Considering the rights of your employees, and all workers along your supply chain, is a significant part of social sustainability.

Setting ambitious social sustainability goals can prove rewarding for SMEs. By nurturing healthy, fair and positive relationships, businesses may notice an increase in employee morale and productivity; gain access to new markets that include ethically minded consumers; and attract or retain beneficial business partnerships.

In preparation, focus on your financials

When applying for funding from the bank, preparation is key. Ensure you have a finance strategy in place, and ask yourself some key questions: why is the bank saying no? Where are my numbers not adding up? Do I have a detailed budget breakdown for the next 12 months? Do I have 3-5 years of researched-based projections?

If a bank rejects your funding application, instead of thinking of it as a ‘no’, sometimes it is better to think of it as ‘not right now’. Make sure your business is ready before applying for funding.

Build business relationships

Winning over your business bank manager or private investor is crucial. When looking for funding, you need to form long standing relationships and convince others of your credibility. You can evidence your commitment by investing both money and time into the business. If you don’t back your own idea, why will anyone else?

Despite common preconceptions, banks are in the relationship business. Your business manager is your financial advocate, and they are going to be making funding requests on your behalf. Invest into that relationship as early as possible.

Plus, it is important to build your own ecosystem – within your community, potential customer base, and other business connections. Attend events, take advantage of social media, join business communities and meet other start-up founders. This will provide you with accessible advice, education, and opportunities.

Consider sustainability sooner rather than later

Sustainability should be a paramount concern for businesses of all sizes. There’s no regulatory requirement for small businesses at the moment, but that will change soon. Moreover, many smaller start-ups are part of a larger corporate’s supply chain. These bigger businesses have investors and shareholders demanding sustainability credentials at every stage. Overnight, your business could lose out as a result of a poor sustainability strategy.

Learn more about sustainability and invest into making changes as soon as possible. Consumers are more eco-conscious than ever, and without a solid sustainability strategy, your business may be behind the curve.