Sole trader or limited company


With so many alternatives to bank loans now available, it is important to be aware of the pros and cons of all the potential funding options for your business.

Various surveys suggest that SMEs still rely on banks for the vast majority of their external finance requirements. Since the start of the corona virus crisis, banks have gone to great lengths to reassure small businesses that they are prepared to lend.

But research also suggests that the difference between bank loan demand and supply across Europe runs into hundreds of millions of euro, which has encouraged many entrepreneurs to seek start-up funding from family or friends. This can be a good option for securing funds quickly and cheaply, but the terms of these transactions should be carefully recorded to prevent future disputes.

More formal alternatives include micro-enterprise loans, debt crowdfunding, angel investment, peer-to-peer lending and venture capital.

The Government’s Microenterprise Loan Fund is keen to stress that it entertains applications from small businesses that may have been refused bank lending. The fund makes loans of between €2000 and €25,000 to businesses with fewer than 10 employees and turnover of less than €2 million.

If you have been trading successfully for a while you might want to consider debt crowdfunding, which is also referred to as peer-to-peer lending. With debt crowdfunding, you use a crowdfunding platform – such as Flender – to attract small loans from a (usually) large number of individuals.

These loans have to be paid back over a specific period at a rate of interest that might be higher than that available from the banks, so like any loan you should check carefully that you will be able to make the repayments.

With the OECD estimating that almost 80% of loans taken out by small businesses in Ireland are short term, the further attraction of debt crowdfunding is that loans can be arranged relatively quickly once the platform has received details of your accounts and run a credit check.

Angel investment is where wealthy individuals (who are usually entrepreneurs themselves) invest in start-up companies in exchange for an equity share of the businesses – think of it as equity crowdfunding without the crowd.

This type of investment usually goes into seed, start-up and early stage businesses with high growth potential since investors will usually look to get a return on their money through a trade sale. Angel investors often invest as part of a syndicate – Halo Business Angel Network is a useful starting point.

There are similarities between angel investment and venture capital in that both target businesses with the potential to grow rapidly and reach a decent scale. However, venture capitalists focus on more established businesses with experienced management teams and tend to make larger investments. You can find out more about venture capital from the Irish Venture Capital Association.

The starting point for applying for any of these funding options is up to date, accurate accounts. Using Big Red Cloud will give you the information you need to make your case as well as showing you how much you could comfortably borrow.