Starting up a new business is a very stressful endeavour to undertake, with one of the greatest concerns almost always being money. The worst thing that can possibly happen to a new business is for it to run out of finances and this is why it is crucial that you organise any additional funding you may require prior to the launch of your new venture. Luckily, there are a number of sources available which you can utilise to get funding for your business.
Loans and Microloans
This is the most popular form of funding and is known as ‘debt financing’; where you borrow money and pay it back with interest over a fixed period of time, regardless of the success or failure of your undertakings. Business loans are most often sourced from a bank and are typically between £1000 and £25,000. Successful loan applications are paid almost instantly; meaning it can be a quick way to get hold of cash.
Grants are essentially cash gifts that do not need to be repaid. The UK government will sometimes offer them to small businesses that are struggling to get their finances together, particularly if they aim to offer some sort of service or perform charitable work. With over 270,000 new businesses launched each year in the UK and a huge range of different grants available, many qualify without even realising and so it is a possibility worth looking into.
Family and Friends
Loved ones can be a great source of money for a new business as they are often less likely to demand high interest rates and hound you for timely repayments. They should never be negatively exploited however and should receive the same respect as an outside lender; proper documentation should always be produced and they should be allowed to view your business plans before they agree to hand over their money. Unfair treatment of helpful family and friends will not only lose you an investor but also your loved ones.
Some banks, such as Barclays, offer two years’ worth of free banking for people taking out their first business account. They also offer a ‘Start-up Guide’ and access to free seminars that inform them about a range of financial issues, in addition to other benefits like a free annual review of their finances and free consultations with an accountant; all in an effort to support fledgling businesses.
This is one of the most common forms of ‘equity financing’; a term used to describe the selling of a percentage of your business in exchange for money to help finance it. Venture capitalists are wealthy individuals who often specialise in a specific area of business. They will invest in opportunities that conventional lenders consider too high risk if they deem them to have potential for future success. Seeking out a venture capitalist is therefore a great alternative if you are turned down by a bank due to a poor credit history.
While you give away a percentage of ownership and profits to venture capitalists, their expertise and professional advice can often prove to be invaluable to a young business’ success.
Julie loves writing about finance and has her own blog at financegirl.co.uk which is updated daily with the topical finance stories, useful tips and money advice.