Whether starting up or growing your small business, getting the funds to do this can be make or break. Here are some sources of funding streams that may be suitable for your business.
If you have personal savings, this is the easiest way of financing your business. If for any reason your business does not succeed, you don’t owe anyone anything. Of course, you will be out of pocket and will need to replenish your savings over time but this will be less stressful than a failed business and a commitment to pay back others.
Loans from family or friends
Loans from friends or family are a common way of financing a business startup. Terms can be decided between you and may possibly be on an interest-free agreement. Do beware of the danger of family feuds and fall outs with friends if for some reason they need to call the loan in early or you find that you are unable to make the repayments. This can become very stressful to all parties concerned and can fracture previously strong relationships.
With a solid business plan in place, the high street banks may be able to offer a start-up loan. Rates and amounts offered will depend upon your personal circumstances and the viability illustrated within your business plan. Always take into consideration the amount you need to borrow, the rate of interest charged and the repayment period that you can afford. And read the small print. It is likely the business loan will be secured against personal assets such as your property should the business fail.
If you only need a small amount to get your business off the ground, it may be possible to arrange an overdraft on your business bank account. Check the amount of interest that will be charged for this service as it may be considerably higher than if you took out a small loan.
There are a variety of loans available whether for starting or growing your business. Do remember with any loan, the amount borrowed will need to paid back by a specified time regardless of whether your business is successful or not. As with traditional bank loans, take into consideration the amount you need to borrow, the rate of interest charged and the repayment period that you can afford.
Sources of information:
Start-Up Loans. A government initiative providing funding, mentoring and support to entrepreneurs.http://www.startuploans.co.uk/
Better business finance. An online finance finder with a variety of loans available in your area:http://www.betterbusinessfinance.co.uk/
Enterprise Finance Guarantee (EFG)
If you have been turned down for a normal commercial loan due to a lack of security or a proven track record the EFG may be an option. The EFG is a loan guarantee scheme to encourage additional lending to viable small and medium-sized enterprises backed by the Government. The government provides the lender (usually a high street bank) with a guarantee for 75% of each individual loan.
See https://www.gov.uk/understanding-the-enterprise-finance-guarantee for more details
Again, if you are unable to secure funding through traditional sources, the Fredericks Foundation may be able to help. They help provide funding to disadvantaged businesses and individuals who have trouble gaining funding elsewhere.
For more information visit http://www.fredericksfoundation.org/
If you need finance for just a short period of time, a credit card may be a solution for start-up funding. There are many competitive deals out there and many 0% introductory offers still available. Do make sure you can keep up with repayments though and can pay off any amount borrowed within any introductory offer period or you may find yourself paying a very high rate of interest once this period expires.
Grants are a form of payment provided to individuals and business which do not need to be repaid. Many grants require some form of match funding where you will need to match the amount granted with funds out of your own pocket. In order to obtain a grant, you will usually need to have a business plan completed and possibly complete some additional application form.
Sources of information for grants available:
For Government backed support and finance: https://www.gov.uk/business-finance-support-finder
J4b Grants. A database of UK and European grants: http://www.j4bgrants.co.uk/
National Enterprise Network. Members in your local area may be the providers of local grant schemes or be able to signpost you a scheme they are aware of http://www.nationalenterprisenetwork.org
Crowdfunding is on the rise. Not only can it be a great way of raising finance, it can also help raise awareness of your business. Crowdfunding is where your present your business idea, usually through a crowdfunding website, and then interested parties invest small amounts into a central pool to help you reach your funding target.
Dependent upon the type of crowdfunding site you use, in return for an investment of money the people funding your business may receive a share in the equity of your business, repayment with interest or some other kind of reward such as books, clothing or whatever your business can offer.
Sources of information:
(these are just a sample – there are more and more crowdfunding sites coming to the market so do your research) The UK Crowdfunding Association has a good deal of information www.ukcfa.org.uk
Equity finance is an option to Limited companies only and is where you sell a share of your business in return for investment into your business. This may be provided by a commercial organisation such as a venture capital firm or private investors who are known as business angels. Investors will be treated the same as other shareholders and face the same risks. They will achieve a return on their investment through the payment of dividends by the company and the value they achieve for their shares when they are sold.
Sources of information:
The British Private Equity and Venture Capital Association (BVCA) www.bvca.co.uk
The UK Business Angels Association https://www.ukbaa.org.uk/
Asset-based loans enable you to secure a loan against company assets, generally accounts receivable and inventory
For more information visit The Asset Based Finance Association (ABFA) http://www.abfa.org.uk/
New Enterprise Allowance (NEA)
The NEA is an initiative funded by the Department for Work and Pensions (DWP) that helps unemployed individuals to start up their own business.
If you are aged 18 or over and be claiming Job Seekers’ Allowance (JSA) or Employment and Support Allowance, you can apply for the NEA which helps unemployed individuals start up their own business.
The NEA provides access to a mentor and financial support comprising £65 a week for 13 weeks, reducing to £33 a week for a further 13 weeks. Participants on the NEA may also apply for a loan of up to £1,000 subject to status, to help towards the costs of starting their business.
For more information visit: www.dwp.gov.uk/adviser/updates/new-enterprise-allowance
The Prince’s Trust
The Prince’s Trust helps young people aged between 18 and 30, who are unemployed or under-employed, to start up in business. The trusts are aimed at disadvantaged young people who find it difficult to obtain finance from conventional sources. They operate from regional offices, arranging advice and training as well as grants and loans.
For more information visit: www.princes-trust.org.uk
Shell LiveWIRE supports young people aged between 16 and 30 anywhere in the UK who are either planning to start a business or are in their first year of trading. Shell LiveWIRE runs two business awards: the monthly £1,000 Shell LiveWIRE Grand Ideas Award and the annual £10,000 Shell LiveWIRE Young Entrepreneur of the Year Award. Go to www.shell-livewire.org/awards/grand-ideas-awards for further information.
Key points to remember:
In order to obtain finance, providers will normally need to be able to judge the viability of your business through a well thought out business plan.
Before undertaking any form of loan, be sure you can afford the repayments
Read the small print. There can be specific terms that need to be adhered to in certain circumstances such as grants so make sure you understand and can comply with them.[print-me]