Your guide to funding for contractors

So you want to use your expertise to become a self-employed contractor. That’s a great idea, but how will you cover the costs of necessary equipment or transport to get going?

When it comes down to it, you’ll need money. Now, funding for contractors is a little different to other businesses. It’s unlikely that contractors get outside investment, so grants and loans will most likely suit you.

So many grants and loans are available in the UK, and there are different ways to apply for both. You should have all the information beforehand to have the best chance of securing funds. .

This guide discusses (different types of/potential?) funding for contractors, including:

• Grants
• Start-up loans
• Regional loans
• Small business loans
• Peer-to-peer lenders

The grants available for self-employed contractors are limited based on where you live in the UK. It’s also easier for businesses to get funding if they are likely to hire additional workers, which is unlikely for a self-employed contractor. 

Still, there are grant opportunities you can benefit from. If you live somewhere where the local economy has suffered recently, more money may be available in your region.

To search availability based on your location, check the UK Government’s grant portal.

Despite changes to the broader economy, you can still apply for loans to fund your contracting business.  A common source of funding for contractors is a start-up loan available from the British Business Bank.

The scheme has backing from the UK government, and it aims to help people set up their businesses. You can get up to a £25,000 loan, but usually, £7,000 is what most receive. 

You’ll have one to five years to repay the loan, with 6% interest per year. The loan also includes a year of accessible business mentoring, which could be helpful if it’s your first time being self-employed.

To apply for the start-up loan, you need to give the British Business Bank your business plan, cash flow forecast and a survival budget.

A business plan is a proposal of what your business will do and how it’ll be successful. Cash flow forecasts are the projected incomings and outgoings of the business over a month, quarter or year. Providing a budget means detailing all of the running costs you have.

For information on preparing these, see the following articles:

• What should a business plan include?
• Why is a cash flow forecast important?
• Budget vs forecast: what’s the difference?

Similar to the regional grants on offer, different parts of the UK offer varying small business loans.

Many of these have backing from local authorities, so you could benefit from lower interest rates than a bank loan.

To find out which of these loans are available for you to apply for, use the UK Government finance search portal. Each region may have different conditions for its loans. 

For example, a West Midlands business loan offers between £10,000 and £150,000. But the East of England loan offers £50,000 to £200,000.

Banks loans that don’t have backing by UK Government schemes can have higher interest rates. Still, with different high street lenders available, you can compare them and shop around to find one with an interest rate or timeframe to suit you.

It’s essential to prepare before you approach a bank to apply for a small business loan. They are likely to pay close attention to your business plan and use it to assess the likelihood you’ll repay the loan on time.

If you manage to secure funding this way, you can often ask for the exact amount you need. So it may be more beneficial than regional loans, which can have high minimums. 

Even though there might be a temptation to go for more money, unlike a grant, it’s worth remembering the risk that it brings. As a contractor, you are either self-employed or the director of a limited company.

As a self-employed person, you are liable for any of your business’ debt. That means you could have your personal assets, such as property or cars, seized by the bank if you can’t repay the loan.

To have limited liability for your business, you can become a limited company. You’d be a separate legal identity, but it requires more responsibilities and paperwork.

Another option of funding for contractors is using peer-to-peer lending. It’s a form of crowdfunding available to self-employed people. 

Crowdfunding means you secure finance from many individuals instead of banks or the Government. But the Funding Circle is backed by the British Business Bank, which is UK Government-owned.

The Funding Circle is an online platform that quickly lets you apply for a loan from the public. The organisation will check your business credit score alongside your sales forecast and business accounts to use.

You will also have to explain what you plan to do with the money you want. Overall, the organisation aims to be easier to apply for than traditional banks, so it could be an excellent option for you.

Managing your money well, is crucial after you secure funding to use as a self-employed contractor. If you keep track of your spending, you can make it go further and avoid issues with not repaying any loans.

To make sure all of your financials are in the same place, open a business account with built-in accounting software available from Countingup. The mobile app gives you the freedom to access it all from anywhere.

Countingup’s cash flow insights can help you keep track of the money coming and going out of your contractor business. Seamless, simple, and straightforward! 

Start your three-month free trial today. 

Find out more here.