7 Ways to Finance a Recycling Business in the UK
Starting a new business or growing an existing company comes with a lot of financial pressures. This is particularly the case for recycling and waste management businesses, where entering new markets and acquiring new equipment can be costly. For this reason, you’ll need to find ways to finance your recycling business. Luckily, there are a number of options available - from utilising personal savings and generating investment through crowdfunding to financing growth through asset finance or purchasing used recycling equipment. In this guide, we outline the best seven ways to raise finance in the recycling industry.
1. Personal savings
Simply using your own personal savings can be the best source of financing a recycling startup. It will give you total control over where to allocate financial resources, whether this is on market expansion or machinery purchase, for example. Furthermore, it means that you won’t create third-party debt, not to mention the personal satisfaction you’ll get from growing your business on your own. Of course, the major disadvantage to using personal savings to fund a waste management business is that you won’t receive the guidance that you would have received through other funding options, such as mentorship provided by venture capitalists or industry-specific advice given by asset finance providers.
2. Friends and family loans
If you can’t use your own personal savings, then turning to friends and family could help with your new recycling venture. It can be especially useful to use loans from family or friends at the initial stages of your recycling business’ growth, prior to turning to more formal financing arrangements. This kind of funding can often be faster and more flexible, but - as with personal savings - only has the benefit of providing initial capital investment.
Financing your business using personal savings or help from family doesn’t mean you should ignore the kind of documentation you would be expected to provide to a more formal business lender. For example, you should still produce a robust business plan, including financial forecasts. In addition, for friends and family loans specifically, you’ll want to to ensure that legal advice is sought so that some sort of contact can be drawn up - will they have any financial liabilities should your recycling business fail? Will they receive any equity?
If you’re struggling with funding your recycling startup with money from family and friends, another option is through crowdfunding. This is where a large number of people each contribute a small amount of capital, enabling you to raise the necessary funding. This avoids some of the issues of relying on family and friends; it means that personal relationships aren’t strained should your business run into difficulties.
There are a wide range of crowdfunding platforms, as well as different types of funding. Crowdfunding can be equity-based, where investors will receive shares in your recycling company. Alternatively, it can be debt-based, where lenders invest with the expectation that they will receive their investment back (with interest).
The key disadvantage to crowdfunding is the time it can take and resources required. You’re trying to win over multiple people to your idea - not just one or two angel investors - and you’ll need to invest in marketing your business before you even list your recycling company on a crowdfunding platform. One further benefit of crowdfunding for recycling business’ is that you’re at an advantage if you can identify a specific local or regional need for your plant - this way it can be easier to generate interest in your startup from likely investors in your area.
4. Angel investment and venture capital
Angel investment and venture capital investment are both equity-based, meaning that the investor will take shares in your recycling business in return for providing you with finance. Due to this, you’ll need to show how your plant will return a considerable return-on-investment in a specific period of time.
Aside from the funding itself, angel investors and venture capitalists will normally take an active interest in your business, opening doors to an invaluable network of future investors, potential partners, suppliers, distributors and so on, as well as offering their own industry knowledge and business development expertise. However, this wealth of knowledge comes at a cost - you will need to give up a sometimes large proportion of your recycling business.
5. Bank loans and overdrafts
Bank loans and overdrafts are arguably one of the most popular sources of funding for growing recycling businesses, with a large range of different options depending upon the goals you’re trying to achieve. The funding process is often quick and easy, and you won’t need to give up shares like you would with angel and venture capital investment.
However, there are a huge array of different business bank loans that are applicable to startups in the waste management industry. This means that you’ll need to spend time researching and comparing the options - such as which provide the lowest interest rates - while a lot of documentation is needed for such applications.
6. Asset finance for recycling machinery
The aforementioned sources of funding can often be most useful for recycling startups. Other options, alongside these, exist if you are an established plant looking to grow. For example, you may wish to diversify your range of services through the purchase of new recycling equipment. In this case, other forms of funding - such as asset finance - can be a great option.
Having machinery that is compliant with regulations is crucial in the recycling industry yet financing recycling equipment purchases can be difficult. If you’re looking to upgrade your machinery, then asset finance can often be the best form of funding. Asset finance essentially makes your equipment pay for itself, meaning that by the end of the agreement your business has realised its growth and you can afford the repayments on the recycling equipment you’ve secured asset finance for.
A large range of recycling assets can be financed - from plants through to specific machines, like shredders, bailing machines and crushers. Furthermore, many asset finance providers will have extensive knowledge of the waste management and recycling industry.
7. Cost cutting
With equipment upgrades in particular, it may be worth considering whether you need a completely new piece of machinery at all. While not a form of funding, you can often finance certain initiatives through cost-cutting measures. For example, you can purchase recycling machinery second hand. Used recycling equipment can still be a great upgrade on your plants current capabilities, but comes at a lesser cost than a completely new machine.