Creative industries accountant Simon Palmer from Garbutt + Elliott discusses the 6 ways you can get funding to set up your own design studio or digital agency.

Starting a new creative agency can of course be daunting, but it can be incredibly exciting and rewarding too. There are a multitude of decisions to make, from IT software to business strategy, branding to location, even the business name itself. 

However, one of the biggest considerations – and the first decision for most creatives when looking to ‘go it alone’ – is whether to treat your new venture as a lifestyle business, usually operating as a freelancer from home, or whether to realise your ambitions and aim bigger. I have seen the birth of many successful creative agencies – and despite what some entrepreneurs would tell you – they don’t all start in the spare bedroom.    

One of the biggest perceived stumbling blocks is access to finance, but with a whole host of funding opportunities available to digital agencies, there is nothing to stop business owners from thinking big, right from day one. Here are some of the options available to help set up your own studio, from the mainstream to the more innovative. 

Bank loan

Often the first port of call for start-up businesses, bank loans are still available and in most cases attractive rates are still being offered, even if strict criteria must be met by applicants.  

The days of the old-fashioned bank manager may have changed, but high street banks will still be very aware of the growth in digital agencies and the potential that this rapidly growing sector can deliver. 

Early stage business loans  

Local enterprise agencies are government-appointed not-for-profit organisations tasked with driving business growth and enterprise in their respective areas. Currently a creative start-up business in Yorkshire, which is where Garbutt + Elliott operates, can get a £25,000 loan at a very attractive rate of six per cent, subject to the necessary criteria of course. 

In my experience, the creative industries do not seem to be taking advantage of this option, perhaps because there remains a lack of awareness and understanding. However, they do present a great opportunity, particularly for businesses unable to access bank funding.  

Creative England business loan

Digital creative businesses outside of Greater London can also benefit from an interest-free business loan from Creative England, the not-for-profit organisation tasked with encouraging investment into the creative industries.

As Creative England itself states, the aim is to “help fuel the growth of the fastest growing sector in the UK economy, financing business expansion and new products which will lead to the creation of new, high-quality jobs.”

Digital SMEs can apply for an interest free business loan of £50,000 to £200,000, which is then repaid over a maximum of three years, depending on the applicant, their business and their project. The loan must be matched in full with other finance, so in many cases it will rely on support from parents or other family members. There are also terms and conditions that mean Creative England will be due a reward based on turnover. However, if there is already finance available, it is a good source of funding that should not be ignored.  

Peer-to-peer 

Crowdfunding continues to be a buzzword in a wide range of sectors and digital creatives are no different. Of course, any new business needs to convince its investors that it can deliver returns and with so much competition from a growing number of digital start-ups, it can sometimes prove difficult to secure investments through more traditional routes. 

Add that to the fact that crowdfunding is hosted, promoted and accessed through the same online channels that many digital agencies develop themselves, and it is easy to see why it’s proving popular. It suits the sector – and we have already seen a number of success stories, particularly for new, innovative business plans. 

SEIS (Seed Enterprise Investment Scheme)

The SEIS is designed to help small, early-stage companies raise equity finance by offering tax relief to individual investors who purchase new shares in those companies. 

If a new digital agency has somebody who believes in the business, they can make an investment of up to £100,000 for up to 30 per cent of the business. In return, they can get tax relief at 50 per cent of the cost of the shares, providing they do not sell those shares within three years.  

If an investment can be secured, it is a win-win situation. The business gets equity, the investor gets tax reliefs. 

Creative-industry tax credits 

Another option to boost finance is to consider creative-industry tax credits, through which a creative agency can get enhanced corporation tax relief (depending on individual circumstances, as with all of these examples).  

Creative-industry tax credits are a group of six Corporation Tax reliefs that allow qualifying companies to claim a larger deduction, or in some circumstances claim a payable tax credit when calculating their taxable profits. Even if a company makes a loss in its first year, it may be able to ‘surrender’ the loss and convert some or all of it into a payable tax credit. 

This is aimed specifically at companies directly involved in the production and development of certain films, ‘high-end’ television programmes, animation programmes or video games.

Simon Palmer is a partner and creative industries expert at accountancy firm Garbutt + Elliott.