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How Should You Fund Your Innovation Project?
Small business finance has always been a bone of contention.
After the financial crisis of 2008 small businesses found it harder to acquire the finances they needed to fund growth and development.
Working in the financial technology industry, we often work with companies that have either secured external funding for, or self-funded, their business innovation.
Because of the lack of available credit from banks, and the decreasing levels of trust in the big financial institutions in the wake of the 2008 crisis, a new wave of funding options have emerged.
According to research from the Cambridge Centre for Alternative Finance, and Nesta, the UK’s alternative finance market is now worth in excess of £3.2bn.
Before you decide which funding model is best for your business it’s important you understand the basics.
Here are three of the main ways that businesses like yours are choosing to fund their innovation projects.
There are four types of crowdfunding: rewards-based, donation-based, equity-based, and debt-based.
Rewards-based crowdfunding gives backers a reward for their contributions. In many cases the backers either get access to the final products at a lower cost, or are given a small introductory product.
Donation-based crowdfunding involves backers contributing funds towards the project without receiving anything in return aside from gratitude.
Equity-based crowdfunding sees backers investing a sum of money into the business in return for an equity stake.
Finally, debt-based crowdfunding involves backers investing money in the form of a loan, with this being paid back over time along with interest.
There are advantages and disadvantages with each of these sources of crowdfunding, and picking one of these will depend upon your business model.
When you are innovating technologically, equity crowdfunding would probably provide the best of these options because it usually involves significantly larger sums of money when compared to the other forms of crowdfunding, but it does all depend on your business.
Self-funding your innovation project can be a costly exercise.
Innovation, particularly when related to financial technology, is often an on-going cost, so if you choose to self-fund your project you should do it with that in mind.
With new regulations like PSD2 and uncertainty over the Brexit negotiations, financial technology needs to be flexible enough to adapt to any changes, which ultimately costs more.
Additionally, if you choose to self-fund your project it may involve waiting for enough revenue to be able to start the work.
In some cases this may mean you miss the boat on your innovation, and in others the market may have changed, meaning you may need further innovation.
However, one significant advantage of self-funding your project is that you retain full control of the business.
3. Bank Loans:
Loans from banks are the conventional way to fund your business expansion and any projects you may want to undertake.
It is also the largest way for small businesses to invest in their development.
According to the British Banking Association’s Mike Conroy, Managing Director for Business Finance, around £6 billion of new lending is approved each quarter.
Whichever option you choose for funding your innovation project it’s important that you look at each of them in depth to understand how they would affect your business, but it’s even more important to work alongside an IT vendor to understand the market and what your innovation will entail.
Getting your product to market and generating revenue as quickly as possible is key to its success, and good funding plays a major part in this.
At Trusek our SaaS platform is providing a powerful fintech solution for businesses across the spectrum, including charities and banks.
Our consultative approach is gaining traction in an industry becoming increasingly crowded.
If you would like to get in touch with us for more information about how we can help with your banking platform or proposition, whether an established bank, an emerging bank, a community bank, a credit union or even a new concept bank, email email@example.com or call 020 7048 0470
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