Page last updated at 08:01 GMT, Monday, 30 January 2006

How Islamic firms can secure backing

London Central Mosque
Islam prohibits traditional loans that charge interest
Securing financial backing for your small business can be hard enough at the best of times, but the UK's Muslims have historically found it even harder.

This is because under Islam the payment of interest on loans is prohibited, therefore ruling out traditional Western lending.

Thankfully a number of Islamic banks and banking schemes have been launched in the UK over the past few years which offer interest free loans in line with Sharia principles, as small business expert Alison White explains.

Hashan Khan, UK
I have started a business importing Bluetooth headsets (wireless hands free for mobiles).

The demand is there to sell at wholesale prices to shops, but due to the limited capital available, I can only supply to one or two shops at a time and then get funds to import more headsets.

As the profit margin is low due to supplying to trade, I need more capital to make profits on quantity. As my religion - Islam - does not allow the payment or receiving of interest, I need alternate forms of funding.

Can you give me some advice on some interest free loans/grants etc.

Alison White, acting head of Business Link London
The need for working funds is a core issue for many small businesses. Each business has its own defined set of needs that often can be addressed in a number of ways.

In your particular situation I would suggest talking to the many Islamic banks that now operate in the UK. Business as well as personal finance is available that is interest free and in line with Sharia principles.

The Islamic Bank of Britain (web link on the right) is operated in accordance with Sharia principles. It is regulated by the UK regulator (the Financial Services Authority) and meets UK banking regulations and safeguards for the customer.

HSBC Amanah also provides finance tools that remove the religious conflicts associated with conventional banking, and are approved by the Sharia Supervisory Committee.

Interest free mortgages can also be arranged through Halal Mortgages.

While these funding resources have their own Sharia supervisory groups you should, of course, seek further clarification from your religious leader.

Other options available to you include applying for a grant, looking for a business angel or bringing in a venture capitalist.

Grants are usually one-off payments for a specific purpose, such as research and development, start-up capital or for a specific business activity.

A range of grants are available from the government, European Union, local authorities or other granting bodies.

It comes down to finding out what you may be eligible for as most grants in the UK have strict eligibility criteria or specific exclusions, for example for certain locations or industry sectors.

Visit the Business Link website and access the grant search tool to find grants that may be available that are local and relevant to your business needs.

Alternatively, visit a website such as Grant Net for more information.

Venture capital (also known as private equity finance) may be worth looking at but keep in mind that this is most suitable for businesses looking for a large amount of capital.

Venture capital firms provide financing in return for a stake in your business, taking a higher risk than banks do with the expectation of receiving higher returns.

Before approaching a venture capitalist, you need to be sure that your business can offer the possibility of a high return.

If you do decide to go down this route, I would suggest that your approach to selected firms would be most productive through a professional adviser who has experience in working with venture capital firms.

To view potential venture capitalists, visit the BVCA website which is a directory of such firms detailing members' preferred amounts and industries.

Looking for a business angel is an option that may be more suitable for you as they are often looking to invest between 15,000 and 300,000 and are usually looking for businesses in the start-up or expansion phase.

Business angels are private investors, or groups of investors, who are looking for opportunities to put money into small enterprises in the hope of making a good return.

The best place to start looking is online at the British Business Angels Network website.

Also check national newspapers such as the Financial Times or ask around.

To ask Alison White a question about starting up a small business, use the email form below.

Alternatively you can email another member of our small business and entrepreneurship panel of experts by clicking on one of the links on the right.

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