Funding Options for Your Business

Finding The Best Option

There are a multitude of options available when it comes to financing your new business idea, either as a sole trader or as a limited company. You can choose between business bank loans, loans specifically for start-ups, personal investment, peer-to-peer lending, equity investment, crowdfunding or asking your family and friends if they have the means to help.

Ideally the best funding option is the one you can afford to pay back and has good repayment terms, provides enough for your project and you overall feel confident and comfortable about it. There is no universal ‘best option’, you need to find what would work best for you.

TYPES OF FUNDING

Personal Investment

Putting your own money into your business can be an easier and faster way of seeing your business idea come to life. This is applicable whether you plan on operating as a sole trader or as a limited company. However, it is also a test of your confidence and commitment to your idea. While this does not require an application or business plan, it is recommended that you have one to ensure you have thought it through.

Some drawbacks to this are; you might not have as much money to invest into it compared to getting a loan or a grant, and the money you put in might be your emergency savings. This could impact you in the long run, as well as change your lifestyle and day to day budget.

Always keep your business money separate from your personal finances, evaluate the risks thoroughly, be careful not to lose assets in the worst case scenario and know what the limits are.

Friends and family

If you don’t have the personal means to invest into your business, you might have thought about asking your friends and family. However, the key thing here is to be careful not to affect and deteriorate your relationships in the process. For this option it doesn’t matter if you would like to be self-employed or operate as a limited company.

Always be honest and clear about how much money you need and what the repayment plan would be and make it formal by putting things in writing. This would help you avoid misunderstandings in the future.

Business loans

Banks might be willing to lend you money for your business. However, many are wary of new businesses and self-employed ventures and would much rather prefer lending to an established limited company. To apply for a business loan you would need a detailed business plan, sales and revenue projections, a cash flow forecast and accounts and tax returns.

Start Up Loans

If the banks refuse to lend you money for your new business, you can always have a look at start up loans. They are aimed exactly at new entrepreneurs that have been trading for less than two years and are given to both sole traders and limited companies. Additionally, they are supported by the Government, allowing you to borrow between £500-£25,000 over one to five years. These loans are provided by the Start Up Loan Company and its delivery partners throughout the UK. They can also help you write a business plan, prepare your financial projections, while also offering financial advice & mentoring.

Peer-to-peer lending

Peer-to-peer lending works just like a regular loan but the main difference is the money comes from individuals that have invested their money into the scheme. Usually P2P lenders are online only and might offer lower overheads and good interest rates.

Business grants

Depending on the type of business you have, you might be eligible for business grants. If your company would meet an urgent demand, solve a problem, or improve social mobility, you might be eligible to apply and receive financial help. They are highly competitive and you need to research where to get it from as it might be offered by the government, your local authority or local growth hub.

Equity Investment

In the case of equity investment, business angels or venture capitalists offer financial investment in exchange for shares of your company. You would also benefit from expertise and industry contacts, in addition to the money. To attract investors your company should have the potential to grow in the future and deliver good value for the investors’ money. One drawback is that you might not end up the only decision maker in the company and that you might have to share its control.

Crowdfunding

Crowdfunding is when people need money for their business idea and turn to the online sphere and other people for help. There are platforms specifically for this where almost everyone can advertise their business idea and plan. However, only a few are successful when crowdfunding, especially that you need to raise all the money you requested or you risk getting none of it. Success also requires you to build an audience or a community and to offer them gifts or the product when the campaign ends.