Plenty of funding options — even if your bank says no
THE general perception of funding for start-ups is that there is very little of it. After all, are start-ups the riskiest type of investment?
It is true that bank funding can be very difficult to secure, precisely for the reason above. Banks want to be able to see the means by which their loan can be repaid and start-ups by definition do not have a revenue stream or track record.
However, the tightening of bank credit has forced the Government to be proactive in this area. The drive for exports and new technologies has also had a positive effect in this regard. Therefore, new businesses need to give full consideration to the following sources.
These can still offer financial supports with Priming Grants being of interest to start-ups as they are awarded within the first 18 months of business. Grants can be for up to 50% of the investment with a cap (in general) of €80,000, although in exceptional circumstances it can be for up to €150,000. They also offer Feasibility/Innovation Grants where the cap is set at the lesser of 50% of the investment or €20,000.
The council established an Economic Development Fund in 2011 through the reinvestment of 1% of rate income into enterprise support. The allocation is broken down under various sub-headings e.g. capital funding, loan guarantee scheme, but worth a look at in case the project falls into one of the categories.
The Government is launching the new scheme which is aiming to provide €90m over 10 years. The intention in the first five years is to leverage €30m off an initial €10m Government fund. Loans of up to €25,000 may be provided. A request for credit must have been declined by the banks to qualify for this scheme, but given the difficulty in lending to start-ups by banks, that shouldn’t be a problem — the moral of the story being that if you don’t think you can get bank funding, apply for it and then at least a refusal automatically qualifies you for this!
Enterprise Ireland (“EI”) has a number of initiatives depending on the stage of development of the company, including innovation vouchers, funding to commercialise research projects in third-level institutions (including feasibility grants and project support for research projects themselves which could have commercial potential in 2 to 5 years). EI also has a high potential start-up unit designed to fast track projects that have scalability.
A number of seed capital funds also exist. While these tend to invest in early stage or development projects, the data shows that they also invest in start-ups. 20% (in number) of investments made under the Seed Capital Programme in 2011 were in start-ups. Participants include funds run by the pillar banks with the largest number of start-ups in 2011 financed by the AIB Seed Capital Fund and Delta Equity Fund III Limited Partnership.
Includes two axes run under LEADER approach aimed at encouraging economic diversification in rural areas.
* Don’t restrict yourself to grants/capital as outlined above. Any funding (training, mentoring, tax relief as provided in the 2012 budget, etc.) is worth considering as cash is always tight so assistance is always welcome.
* A lot of ventures over the years have been part-funded by friends and relatives. If venturing down that route it is advisable to document “the deal”. If being used as equity it would be wise to put a shareholder agreement in place.
* Accept that outside equity may be inevitable. In a discussion I had at a senior level in the Central Bank last year, it was pointed out that the continental model of funding has higher equity and lower debt than Irish norms and we were going to have to move towards the continental model. This would also necessitate tighter shareholder agreements to reduce the potential for conflict in due course.
* Don’t forget Europe! There was a time when we were very adept at tapping EU sources for funding. Check out the European Commission or Enterprise Europe Network websites. Funds are available so why not investigate.
There is a trend to push towards more non-bank finance in general terms internationally across companies in various stages of their development and I would expect a similar trend here in due course.
In the interim the above selection will hopefully provide you with a few potential sources.
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