British entrepreneurs are founding a wave of businesses, and so creating their own employment opportunities amid the economic uncertainty. The number of new companies incorporated in the third quarter of 2020 increased by 51,269, or 30%, compared with the same time last year – the largest increase since records began, according to Companies House.
Perhaps hoping to emulate the success of Bellerby & Co, Franco Manca or TransferWise – all born during the last recession – many of these startups are looking to seize the business opportunities being created by the current rapid changes to society, and play a leading role in the economic recovery from the Covid-19 pandemic.
Fortunately, the availability of finance to launch and scale a business is plentiful. Richard Bearman, managing director of Start Up Loans at the British Business Bank, says that although companies can grow organically, finance can accelerate growth and safeguard sustainability, with knock-on impacts for the wider economy.
Start Up Loans provides loans of £500 to £25,000 to help entrepreneurs launch or grow new businesses. The loans offer a fixed interest rate of 6% a year. In 2019, some 40% of loan recipients were women, 22% from a black, Asian and minority ethnic (BAME) background, and 36% were unemployed when they applied for the loan.
“Getting money into less advantaged areas of the economy drives employment and wealth creation,” says Bearman. “Entrepreneurs have the ability to change existing social imbalances.”
Vese Aghoghovbia Aladewolu took out a £2,000 Start Up Loan in 2019 to grow her children’s lifestyle brand, Philly & Friends. She is using the money to illustrate her second book, about 40 inspirational African women, which she is self-publishing because several publishers told her it lacked mass-market appeal. The rejections underscored the problem she is trying to solve: she wrote her debut title about identity, Philly & Friends: Who Do I See in the Mirror?, for her daughter after struggling to find children’s books featuring BAME characters.
Through Start Up Loans, she attended masterclasses on marketing, where she learned how to build awareness of her brand on a budget. For example, last year she wrote an article for HuffPost on how to speak to kids about diversity. “Before, I had no idea how important marketing was. Now I have the tools to grow my business,” says Aghoghovbia Aladewolu.
As well as the provision of finance, expert advice is an important part of Start Up Loans. Entrepreneurs are paired with a business advisor, who helps them write or strengthen their business plan as they apply for a loan. Then, successful applicants get up to 12 months’ free mentoring, as well as access to online courses from the Open University. Bearman says: “Starting a business is high risk, but among the applicants who get loans from us, the business failure rate is far below the national average.”
It may seem risky to start a business in a pandemic, but crises can create opportunities. Mike Cherry, national chair for the Federation of Small Businesses, highlights the digital revolution that’s been accelerated by the Covid-19 pandemic: “Habits among customers have fundamentally changed, with more working from home, fewer travelling, and most accessing entertainment differently,” he says. “In the first stages of this crisis, we saw 83,000 new e-commerce websites set up in the UK.”
While banks remain the dominant source of finance, Cherry notes that alternative finance providers can offer small businesses flexibility, easy application processes and good terms. There are crowdfunding platforms such as Seedrs and Crowdcube, as well as peer-to-peer lenders like Funding Circle.
Alex Barnes, though, relied on research grants to fund his startup. This included a grant worth £180,000 from the government’s Sustainable Innovation Fund, which has a £10m pot for new projects focused on a sustainable economic recovery from Covid-19. In April, he launched Crowdless – a free app that allows people to see, in real time, whether shops are crowded, as a way to support social distancing.
“The more evidence you have to show the business has traction, the better your chances of getting funded,” says Barnes, adding that he secured private investment from business angels (rich individuals who act as mentors).
The pandemic has, perhaps counterintuitively, convinced many people like Barnes to strike out on their own. When jobs are hard to come by, people tend to become entrepreneurs out of necessity – which is said to be the mother of invention. Indeed, Dom Hallas, executive director of Coadec, a group that represents tech startups, says the recession is invigorating the sector and inspiring a new generation of entrepreneurs who could create companies that become future household names.
“Entrepreneurship is the classic route out of recession. It’s no coincidence that a lot of the companies that have been mega successful in the past 10 years came out of the 2008 financial crisis, when many people lost their jobs,” says Hallas, adding that companies created today should be more resilient and dynamic in the future.
The British Business Bank is a government-owned economic development bank, helping thousands of businesses across the UK access the financial information and support that they need to get back on track. British Business Bank plc and its subsidiary entities are not banking institutions and do not operate as such. Accordingly, none of the British Business Bank group of companies takes deposits or offers banking services. Find out more at british-business-bank.co.uk
