When it comes to turning your business idea into a start-up success, you need to have appropriate funding to enable you to launch effectively. With this funding, you will be able to cover your start-up costs, buy the supplies you need, hire staff, start operational processes and introduce cashflow into your enterprise.
In today’s world, there are many avenues an entrepreneur may go down to access the money they need to make their business a reality. The finance you secure will build the base for the rest of your company and its future longevity. As such, it is vital to obtain funding that fits your business and its unique requirements.
In this guide, we are placing a spotlight on the different sources of finance open to start-ups and how they could work for you to help you identify the ideal solution for you.
- Start-up loan
- Other business loans
- Angel investment
- Venture capitalists
- Peer to peer lending
- Crowdfunding
- Grants
Start-up loan
As the name suggests, a start-up loan is aimed explicitly at recently launched enterprises or entrepreneurs wishing to set one up. As well as funding, these loans may offer additional support in the form of mentoring.
The primary source of start-up loan is through the government-backed Start Up Loan scheme. These loans offer £500 to £25,000 in the form of personal loans, taken out by business owners and other key stakeholders. Each member of your company can take out a loan to pool together, with a limit of £100,000 per business. The loan terms last between one and five years, and you will need to provide documentation around your business plan, financial forecasts and personal finances.
Other providers may offer their own start-up loans, separately from the government scheme, which give more sizeable funds – so it’s worth searching around or speaking with an independent advisor to find out what is available.
Other business loans
As well as specific start-up loans, you may be able to access funding through another business loan. The lending market is broad right now, with many commercial and alternative providers offering loans to SMEs and start-ups. The key is finding one that works for you and meets the needs of your company.
Spend time shopping around different providers to find out the options available. Make sure to check the requirements for each loan and that you are eligible. Many loans will require a thorough application, including a business plan, so be prepared to provide this.
Check things like the interest rate, term, whether the loan needs security and any additional benefits when choosing what loan is right for you. This will help you to make sure any loan you take out is suitable for your requirements.
Angel investment
Another common source of start-up funding is angel investment. An angel investor is an individual with a high net-worth, usually with their own experience in business. They will be looking to invest in valuable enterprises in exchange for shares.
The benefit of using an angel investor is that they offer sizeable funding if you manage to bring them on board with your idea. In some cases, they will be able to provide advice from their business endeavours or even connect you with helpful contacts. However, it is vital to effectively pitch to these individuals and demonstrate the return on investment they will receive for backing your enterprise.
Finding an investor is now easier than ever, thanks to online platforms. Networking can also help you to search for these angels. Our tips for finding the right investor for you will help with the process too.
Venture capitalists
Venture capitalists are investors who want to place money in high-risk ventures in exchange for a high return on investment. So, if your start-up idea has high growth potential, venture capital (VC) could be an ideal solution for you.
VC companies tend to ask for at least 25% in shares in exchange for backing a business and typically invest upwards of £1m. However, you will need to have the potential for growth so that they are assured of getting a return on their investment. Investment tends to be long-term to maximise this return.
Most VC companies will need to see proof that your business is commercially viable and that operations are scalable. If you are able to prove this, you will enjoy active support for your enterprise to help its growth as well as substantial investment.
Peer to peer lending
Peer to peer (P2P) lending is when groups of investors pool their money together to lend to a company. Unlike the likes of angel investment, these investors won’t necessarily be industry experts or have a high personal net worth. However, by bringing their money together, it can still amount to sizeable funding for your enterprise.
You will need to highlight the value of your company to these lenders. These lenders are typically pooled together on a platform, the platform management team will need to be confident that you are worth lending to and that they will see reasonable returns.
P2P lending has grown in popularity in recent years, with online platforms set up to match individuals and borrowers together. An advantage is that you will be able to access funding quicker than you would with a traditional loan. There will be fees associated with the P2P loan if you use an online platform, so be sure to consider these before committing.
Crowdfunding
Crowdfunding sees members of the public dipping into their pocket to give funding to businesses. It is a well-publicised and increasingly popular form of funding, with many success stories of enterprises who have been able to receive substantial money through it. Growing businesses often use it, but it can also help to launch start-ups.
Crowdfunding will not work for every business. You need to be able to resonate with the public to get them to want to support you. Enterprises that tend to do well are those that offer value to people, such as providing an innovative new product, addressing the needs of a niche group or having a charitable element involved in its operations. You will need to successfully pitch to the audience what good you will be providing when your company is set-up. You might even offer an incentive, such as a discount when you open.
Online platforms such as Crowdcube, Seedrs, GoFundMe and Kickstarter are all very different but will allow you to target potential donators, utilising the reach of the internet and social media to increase awareness. If you are successful in your attempts, you will be able to enjoy potentially vast sums of investment, as well as the support of the public.
Grants
Another form of start-up funding is a grant. Grants are ideal if you can get them as they provide sums of money, without the need to repay it. However, there are often strict criteria that need to be met for you to apply.
Grants tend to be available to enterprises who utilise innovation in some way, invest in capital that generates or safeguards employment or provides value either to their industry or community in some way. Check with any leading bodies within your industry or local authorities that might offer grants or rewards, and find out if any apply to your business. You should also check on the government website.
If you do find any grants with criteria you believe your business meets, it is worth applying to give your finances a boost.
Get advice
There are a host of options available to start-ups seeking funding to set up their enterprise. This means that it is easier than ever for companies to find the right solution for their business.
The funding sources given above are great for anyone looking to get finance to launch, but it is equally important to understand what support to utilise in the long-term, such as cashflow management. As a result, you will be able to ensure the success of your business.
If you need advice in accessing finance for your start-up, our team of experts can help. We have experience working with many industries and funding sources, so we are able to find the perfect match for your requirements.