It can be challenging to Plan and Launch a New Business, and you’ll probably need to get funds for the business. People typically find the Business Funding Process to be incredibly stressful and quite draining.
Getting funding is one of the difficulties in starting a business, especially a smaller one.
Fortunately, the landscape of financing for a new business is continuously evolving and is beginning to provide entrepreneurs with more alternative funding choices.
Do not let funding hold back your business goals. There are many options you may not have thought of in terms of your funding to start a business:
Before you explore how to get funding for a new business of yours, the first step is to look at your own financial situation. One of the best sources of funding is your own money. You will be able to fully take control of your company’s financial transactions this way and present a more promising picture. If you have committed your own money, you will also be better able to persuade other investors of the viability of your Business Idea. It will help minimise the perceived risks for investors and open up more avenues of funding. After all if you aren’t backing yourself how do you expect others to.
If you have committed your own money, you will also be better able to persuade other investors of the viability of your Business Idea.
Over the past few years, crowdfunding has become very popular. You may be curious about how crowdfunding operates. The way it generally works is that you must first provide accurate and comprehensive information about your new company on the crowdfunding site. If your clients or customers back the concept of your Business Idea, they will provide you with the cash. You will need to express the goals and purpose of your business as well as how much profit you plan to generate annually or monthly, why you started this specific business, and much more.
There are four distinct kinds of crowdfunding, and the key difference is what you provide your investors in exchange for their money:
This is based on the premise that you give up an interest in your business in exchange for money. This means you can raise a lot of money, but you’ll have to be very transparent about your business and cautious about what portion of it you give away.
Crowdfunding with Rewards
This is generally about incentivising your backers by selling the products or services you’re selling at a relatively lower price.
Peer-to-peer crowdfunding is similar to receiving a Business Loan from a group of investors with the understanding that you would have to pay interest on the loan.
Donation-based crowdfunding allows you to get funds without needing to do anything in return. However, this generally applies to businesses that help out local communities and so is perfect for Charities or Community Interest Companies.
Community Development Finance Institutions
It’s understandable if you don’t know about CDFI. They happen to be a very obscure feature of the UK financial system.
The term “CDFI” refers to Community Development Finance Institutions, which are ethical lenders who assist businesses they lend money to.
This includes financing at competitive rates, so CDFIs aren’t exactly cash cows. In fact, many of them run on a non-profit model and depend on donations from the Government, wealthy individuals, and Philanthropists.
Funding from a CDFI may be an excellent option for your company if you want a Business Loan but are unable to be approved by a commercial bank. Use the search feature on the Finding Finance website to explore what CDFI possibilities are available to your business.
You can also find UK Government Business Finance Support online.
Another way of financing for a new business is through Home Equity. Your home’s equity can be used as security for loans, allowing you to borrow money. Due to the presence of collateral, you will be able to formally promise to repay the loan within a set period of time, and if you are unable to do so, the Lending Institution will be able call the loan in as they may have a charge against your property, this means unless you can find the funds elsewhere a forced sale of your property can be completed to allow the institution to recoup its loss. Although this is a risky operation, there are specific rules that both you and the lender must follow.
You can find more about loans and borrowing in our Step-by-Step Guide to Financing a New Business in the UK.
Friends and Family Loans
If getting funding for a business is leading you to dead ends elsewhere, there is always friends and family to help raise a one-time investment for your new company.
According to research, family members and friends of the entrepreneur spend money on their Business Initiatives three times more often than Angel Investors. Although asking for a loan from friends and family can be awkward, you must have some trust in both yourself and them. This leap of confidence from you is required. To get them on your side, you may show them your company strategy along with a Cost-Benefit analysis of investing.
The secret to ensuring that a family loan doesn’t result in any uncomfortable situations down the road is to make sure the conditions are clear, and there is a suitable agreement that can be pointed to afterwards. The two parties must acknowledge their shared risk by signing an agreement, which is a requirement in many nations. Startup Enterprises are typically risky, and you, your friends, or even your family may lack relevant experience. This is why it is advisable to work with a lawyer to prepare the Loan Agreement.
According to research, family members and friends of the entrepreneur spend money on their Business Initiatives three times more often than Angel Investors.
You can use some of your Retirement Funds to invest in your new business. It’s likely to be helpful to talk to your friends and family about your intentions before you do that. You must also get expert advice from licensed accountants and lawyers. They will assist you in knowing more about the business Startup approach and the risks you will have to accept. You must exercise caution even though it may occasionally appear attractive to use retirement assets to make investments in your company.
There are several organisations out there that are willing to assist a new business in obtaining funding. Business accelerators, also known as Incubator Programmes, support the growth of Startup companies by providing seed capital in return for an ownership part in the company. Incubators offer mentor programmes, networking possibilities, and the necessary funding.
Incubators offer mentor programmes, networking possibilities, and the necessary funding.
There are often Business & SME Grants available that tend to be match funded so will require you to put in a certain percentage of funding and then a funding source with match it with another percentage. The Business Grants available can vary on location and the type of business you wish to start but it is always worth looking into this as part of your research both before starting and during the set up of your business. There will be lots of different criteria that apply and this will vary with all available Business Grants depending upon who the lender is and what the purpose of the grant is. Your local Growth Hubs are a great place to start when looking at this along with the UK Government Grants.
Anyone who has ever had a bank account is likely familiar with how an overdraft operates. It’s basically a way to continue spending (and entering negative numbers) after your balance reaches zero. Interest will, however, be levied on the negative amount.
Similar to a Personal Overdraft, a Business Overdraft is tied to your business bank account, and the rate of interest you pay is determined by the financial health of your company.
Overdrafts may be arranged or unarranged. When you and your bank agree on a certain sum, you can overdraw and the associated fees that come with it, this is known as arranging. Unarranged Overdrafts occur when you don’t notify your bank and often incur astronomical fees as a result.
They may also be secured or unsecured. A Secured Overdraft is secured by property owned by your company. If you are unable to repay the overdraft, the overdraft may be secured by your company property or car, for instance. Such terms do not apply to Unsecured Overdrafts.
When it comes to financing your business, there is no one-size-fits-all solution. The ideal option for you will hinge upon the stage your company is in and the use you want to make of the financing.
At Start.Biz, we help you navigate the funding landscape to start a business. Reach out to us today, and we will help you get the funding you need to realise your business vision!
- One of the best sources of funding is your own money. You will be able to fully take control of your company’s financial transactions this way and present a more promising picture.
- Crowdfunding is another avenue to explore. If your clients or customers back the concept of your Business Idea, they will provide you with the cash.
- Funding from a Community Development Finance Institution may be an excellent option for your company if you want a Business Loan but are unable to be approved by a commercial bank.
- Another way to finance your new business is through Home Equity. Your home’s equity can be used as security for loans, allowing you to borrow money.
- You can raise a one-time investment for your new company from friends and family. According to research, family members and friends of the entrepreneur spend money on their Business Initiatives three times more often than Angel Investors.
- You can use some of your Retirement Funds to invest in your new business. You must exercise caution even though it may occasionally appear attractive to use retirement assets to make investments in your company.
- Business accelerators support the growth of Startup companies by providing seed capital in return for an ownership part in the company.
- Similar to a Personal Overdraft, a Business Overdraft is tied to your Business Bank Account and may be used for funding in certain situations.