Why is it difficult for small businesses to find money to grow?

30/04/2022 12:14 By #Marketing

How can small businesses find money to grow?

Some common funding sources for small businesses

When we refer to a "small business", we usually mean those with between one-and-five employees that have a turnover of less than £2.5m or an annual income between £100,000 and £500,000. It's also worth remembering that many small businesses are sole traders or partnerships without employees.

When you think about the types of business that fit into this category, you'll probably think of local shops, cafés, restaurants and so on – but the range is much wider than that. For example, many new businesses will start off as one-man bands or home businesses, and there's some really exciting stuff coming out of this area right now. New businesses such as online marketplaces like Etsy or food delivery services like Deliveroo are growing rapidly, which points to the wider category of digital business models being embraced by entrepreneurs with limited funding options.

One of the main reasons that it can be difficult for small businesses to find money to grow is that they often don't have much in the way of collateral. This can make it tough to get loans from banks, as lenders will typically want some kind of security before they're willing to give out a loan.

Another reason why small businesses might struggle to find funding is that they simply don't have the same track record as larger businesses. For example, a new business is unlikely to have the same level of revenue or profit as a more established company, which can make it harder to secure investment.

Finally, many small businesses operate in niche markets, which can limit their options when it comes to finding investors. For instance, if you're running a specialist retail business then there may not be many people who are willing to invest in your company due to its narrow focus.

One of the best ways for small businesses to find funding is through government grants. There are many different types of government grants available, and each one has its own eligibility requirements. However, the process of applying for a grant can be time-consuming and competitive.

Another option for small businesses is to raise money through crowdfunding platforms such as Kickstarter or Indiegogo. With crowdfunding, businesses can reach out to a large number of potential investors at once and get them to pledge money towards their project or product. The downside of this method is that it can be difficult to reach your fundraising goal, and you may not get funded if you don’t meet your target.

Finally, small businesses can also look into venture capital firms as a source of funding. Venture capitalists are willing to invest in high-risk projects in exchange for a percentage of ownership in the company. However, getting venture capital funding can be difficult as they typically only invest in companies that have the potential to generate a lot of revenue.

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