At some point every business needs a bit of a cash injection. Whilst there are businesses which can be set up for just the cost of a website hosting, others may need a huge initial investment. Businesses such as restaurants or car hire, for example.
Wherever you sit on the spectrum of business startup costs, looking for funding can be a bit of a minefield. Not everyone is in the fortunate position of having instant capital when they want to start a business. Some people can fund their own ventures, others rely on family or friends, but for everyone else, there are alternatives available. Are you sitting comfortably? Then we shall begin…
This is probably the first option that pops into mind when you think about how to get financing for your business. The downside to business funding from the bank though, is all the hoops you’ll have to jump through.
Sometimes banks can be very wary of lending to small businesses, particularly new ones. Expect to be asked for a thorough business plan with figures and extensive research to back up your claims, or you won’t get very far.
A relatively new feature in the financing world, Merchant Cash Advances work like ordinary loans but the repayments are what makes them different from other loans.
Instead of paying a fixed monthly repayment to the lender, the lender takes an agreed percentage of the business’ credit or debit card sales.
This means that you only pay the lender back when you make a sale, making it much more convenient for businesses who would otherwise struggle with fixed repayments. It’s particularly popular in retail or hospitality businesses where card transactions are consistent.
However, this option is only open to established businesses with plenty of card transactions. While it won’t be suitable for brand new businesses, it’s something worth bearing in mind further along the line.
Got a unique product idea? If you need seed money to develop and test a prototype, and to fund initial production, then crowdfunding might be for you.
There are plenty of crowdfunding websites that will host your campaign, and give you guidance on how to promote it. In essence, your selling your product to customers, on the understanding that you haven’t got it to sell yet. They know they’re buying something which is yet to come, and you get the sale in the bag, ready to fund it.
Venture capital refers to the financing of startups or small businesses that investors believe have growth potential. This is typically in exchange for equity in the company and therefore your business will have to give investors a say in company decisions.
Venture capital is particularly popular for those businesses with a limited operating history.
The source of financing can come from investors, investment banks or other institutions that provide financing.
Business grants and relief schemes
There is help out there in the form of small business grants and reliefs such as Innovate UK Smart Grants programme, Seed Enterprise Investment Scheme and relief schemes such as R&D Tax Credits.
Some of the funds are for startups, some for young entrepreneurs, others are for research in science and tech, and some are for established businesses. It’s well worth looking into whether you’re eligible for any funding help as well as tax relief. Lots of people never bother, or simply don’t realise they could have had help.
Whatever option you choose in the end, it’s important to be prepared. Anyone who wants to invest in you, whether they’re an individual or part of an institution is going to want to see proof that your business is viable and likely to succeed. This can be difficult when you’re first starting out, but there is still plenty of research you can do about your idea and the market you wish to operate in.
Plan ahead, do your research and make sure that your business idea fulfils a real need before applying for funding!
Are you looking at a specific funding option or have you ever had any experience with any of the above? Leave a comment below to share your thoughts or experiences.