How To Finance Your New Business
How do I fund a business with no money?
A question regularly asked once you’ve decided on your product or service offering. It may seem like a daunting task as ultimately, without funding, you will not have the opportunity to succeed in your new venture.
However, sourcing capital for your business idea might be a lot more accessible than you think.
There are lots of ways to finance a start-up, whether it’s start-up loans, grants, or investors, it’s important to decide which avenue of funding best suits you and your new business.
It might be tough to know where to begin, which options are available to you and if it’s the right choice – that’s where we can help.
This Business Finance Guide will not only help you pick the best way to raise money but provide a diverse variety of routes that you might not have known are out there.
Get Support From Your Friends and Family
A finance option that is readily available to most start-ups is borrowing money from family and friends. Your nearest and dearest may just be the best way to get your new business off the ground.
This classic way to raise capital is founded on the premise of trust and belief in your work ethic, vision, and idea. Criteria that may not suffice for formal investors or bank loans.
Although this is a usually safe way to gather money for your new venture, it’s important to take into consideration legal advice and understand the complications of relationships becoming strained or tainted.
Receiving support from your family and friends is a good place to begin when trying to start your business.
Apply For A Small Business Loan
Good news! There are a lot of banks across the UK that specifically offer loans to small businesses. However, you will have to meet a certain criterion to qualify for the loan, as banks must consider the risks and rewards of investing.
You might opt for an alternative lending company, choosing this option will require thorough research to make sure you borrow from a reputable company.
Unsure which banks offer small business loans? Here are our top small business financing banks in the UK:
HSBC
Barclays
Lloyds
NatWest
“After deciding to purchase the lease of the pub, Matthew was able to invest a significant amount of his own money, but we did not have the full amount required.
We approached a bank and had a detailed conversation with their business manager who led us through the process of applying for a loan. We produced a detailed business plan and with the help of an accountant, we were also able to produce a cashflow forecast to satisfy the bank.
Once these had been approved, the bank issued the loan. In year 2 of trading, we were able to repay the loan in full. We felt this was a sound business decision, as this saved us paying any further interest on the loan.”
– Matthew and Milena (Former Publicans and My New Venture platform users)
Crowdfund Your New Venture
In today’s heightened social media world, crowdfunding for your new venture might just be the best option for you.
Once you’ve got your business plan and branding, building social reach on social media platforms is a great way to kick-start your capital influx.
This starts with sharing your idea, concept, or service with consumers and encouraging them to invest in your vision.
Although this might seem like an easier option, building buzz and conversation around your small business may be difficult due to the heavily populated realm of social media. Generating capital from social media crowdfunding may cause a great deal of time and energy with limited reward.
Our top crowdfunding platforms for your small business:
Bootstrap Your Business
What is bootstrapping? This is the term given to financing your small business through your income, personal savings, mortgages, or low or no-interest credit cards.
Bootstrapping is usually your starting point and plays an important role in the beginning stages of your venture.
Before funding your small business yourself, consider your credit and your ability to access affordable credit because the longevity of bootstrapping is limited.
This source of financing is dependent on your small businesses success, as it may result in high debts that will need to be monitored and managed carefully, to avoid large repayment bills.
Use A Business Credit Card
Using a business credit card for your new venture provides access to a wide range of benefits including convenience, the fact the card is globally recognised, as well as interest-free credit. A business credit card can help you monitor and easily track your expenditure, a huge advantage in the long term.
You can open yourself to several key benefits, however, this source of funding may incur interest charges and debt which can easily mount up.
Peer to Peer Lending
Peer-to-peer lending is an alternative source of funding for small businesses. This involves websites connecting investors and new companies in need of cash.
Once qualified, you are given access to a range of business loans which may be willing to lend smaller amounts in comparison to banks. Along with the process being quick and conveniently online, you can also make early repayments.
Peer-to-peer lending does come with its risks. This finance option may have additional fees on top of interest rates for your loan, an amount which may add up quickly. If you are accessing loans with a poor credit rating, lenders may charge you higher interest rates than traditional banks.
It’s important to consider your personal profile before considering this means of funding.
Obtain A Small Business Grant
Applying for a small business grant is a great way to access free and credible money. Grants do not need to be repaid, a huge bonus when starting a new venture.
If your small business is innovative in any field from beauty to technology, it may be worth looking for small business grants.
Along with applying for a grant, entering competitions that reward start-ups in your area and industry is great financial assistance in the beginning phases of your business.
Not sure where to look? Find sources for small business grants collated here: Innovate UK Smart Grants.
Equity Investments
An equity investment entails selling shares of your small business in return for money investments. This funding method has limited liability and quick capital gains, with limited concern for poor credit history.
Equity may be preferable and suit your small business needs in favour of debt financing.
However, raising equity finance can be a costly and time-consuming process which may distract from the core operations of your small business.
This demanding funding method means you will also have to share your profit with investors. If you view your business model as an independent solo operator, this may not be the best option for you.
Venture Capital
Do you have high growth potential?
A venture capitalist may be the investor for you. Venture capital is not like an angel investor as it will play a large role in the activity and operations of your small business, usually becoming partners or associates.
This funding source means handing over a lot of control in the beginning stages of your venture, understandably not a very appealing option for many start-ups. However, if large scale growth is a major aim for your small business, this is a funding method to consider.
Keep Your Main Job Until Your New Business Becomes Financially Viable
Although you may feel like your new venture is destined for success, it’s a safe option to keep your current job. Keeping your day job not only guarantees a steady income to invest in your small business but enables you to stay true to your original business vision with less financial pressure.
However, this may compromise the time and energy you can commit to your new venture as it becomes a side business. Time management and organisation are vital to creating a healthy balance between your day job and the success of your small business.
