Crowdfunding for food businesses and other ways to raise finance

If you are looking to get your food business off the ground or hoping to expand, there are several main funding options for food businesses. Whether you’re ready to scale up production, develop your brand, build out your organisation or just turn your idea into a product, there are ways to get financed. From crowdfunding for food businesses to government grants, here are some of the options available.

Crowdfunding for food businesses

Crowdfunding has emerged as an option in the last ten years or so and crowdfunding for food businesses is a popular route. Think Kickstarter, GoFundMe and Patreon. The good thing about it is it can help you raise funds and sell your product. Platforms such as Seedrs and Crowdcube allow people to buy a share in your business. Alternatively, you can give them product instead of equity. It can be a great way to get your name out there and build a community. However, you need to have between 50-70% in committed funds before you launch, and there are fees too. The platforms run a due diligence process, so you’ll need a pitch deck and financial plans.

Equity investment

Crowdfunding tends to work by generating small investments from many people. Equity investment usually involves a small number of investors, or even just one. Angel investors or venture capitalists offer money in return for a share of your business.

An angel investor is a high-net-worth individual. They would typically invest up to £250,000 and are people who want to support you on your journey. On the other hand, Venture Capitalists usually invest sums greater than £250,000. They want a clear exit strategy and a significant return on their investment in a defined timescale.

The benefits of finding investment are you have no obligation to repay if things don’t work out for the business. More importantly, they can provide you with access to expertise and experience to help you grow (think Dragon’s Den). Be mindful that you are giving up part of your business. VCs also get sent hundreds of pitches each week, so the key is to make yourself stand out.

Debt funding

Much like a mortgage, debt funding involves taking on liability from a bank or institution to fund your business. Although a good funding route, start-ups can find it difficult because debt funding is often associated with hefty fees and high interest rates.

Like any loan, it involves a business taking on the obligation to repay the debt plus interest over an agreed period. There are also some Government schemes with very low interest rates, such as the Virgin Start-Up loan, which allows you to borrow up to £25,000 to fund your business. Peer-to-peer (P2P) lending platforms might also be an option. Similar to crowdfunding, P2P platforms such as Funding Circle, Zopa and RateSetter can loan up to £500,000.

Invoice financing is another area of growing popularity. It typically helps you manage your cash flow by borrowing against the value of your invoices to customers. It means you get this money more quickly, though you ultimately pay a fee for benefit. The crucial thing to remember, whichever route you take, is that you should have a solid financial plan for repayment.

Grants and R&D Tax Credits

The best sort of money to get is free money. Grants and R&D Credits are a great way to do that. An entity gives grants – often a public body – to a business to help deliver on a strategic objective. There are lots of Government schemes available to fund small businesses. For example, the government funds initiatives to help people start businesses, access expertise, increase access to healthy food or make businesses more sustainable.

Innovate UK and R&D Credit schemes are another great source of funding. However, here you will need to spend the money first and then claim it back. Innovate UK has several schemes you can apply for, with no obligation to repay.

R&D tax credits are very similar – you have to incur costs for 12 months, and at the end of the year, you can claim back any qualifying expenditure through your corporate tax return. There’s no real cost to accessing R&D tax credits and no penalties or charges.

Ready to learn more about fundraising for your food business? Watch our latest webinar featuring Addition Finance’s John Miller. He outlines the funding options available to food businesses in detail and explains what you need to know and do before, during and after the process. Watch the webinar recording now.