One of the biggest hurdles to starting your own business is often finance. While some smaller business may need a small financial input, some larger companies may need several thousands of pounds. How you finance your business is crucial to the success of your startup.

Why do you need funding?

Before you look into obtaining your funding, ask yourself what you need the funding for.

All businesses need a plan and for a startup, a good plan is essential. Sit down and make a list of everything you will need to get your business started. Things to include are:

  • Stock
  • Advertising
  • Staff
  • Company stationery
  • Equipment
  • Insurance
  • Premises
  • Training

You’ll also need to calculate your initial income of what you think your profits will be. Obviously the moment you start getting customers, your business will begin to create its own income.

Once you sit down you’ll soon realise there’s a lot to think about, but you may also realise you don’t immediately need to fund everything on your list straight away.

Not all companies need premises as many small business owners work from home. You may also find you do all the work to get started, so you won’t immediately need to hire staff. This immediately   reduces your initial financial input.

How to get funding

Once you have worked out what you need funding for, you can work out how much you need. Here are just a few ways where you can find the money to help you get started.

You don’t have to rush to find full financing for your business. Instead just work out what your immediate concerns are and see if you can maybe fund them yourself.

  • Savings

Many small businesses are set up using the owners own savings. Even if the savings do not cover all of the start-up costs they are often enough to help you get the things you need.

  • Your income

Many people start up while still working in their existing job. Most people prefer to build their business and profits up gradually by maintaining a regular income from the everyday job. If you have any excess income you can decide on a monthly budget to put towards your new business and as it starts to make a profit this can help you with further finance.

  • Friends and family

We don’t always like to ask friends and family for money but when we are setting up a new business they are often very willing to help. If you mention to them what your plans are and that you need a little help with funding you may find they are more than happy to invest. A lot of the time instead of charging interest they will be happy to receive a discount when they use your services.

If you do borrow from friends and family make sure you don’t take advantage. Give all investors regular financial updates and if you cannot afford to pay everything back in one go at least offer to pay what you can when you can. Lending money to those we know can be a recipe for disaster if we are unable to pay them back.

If you cannot get the funding you need using these means, you may need to look further afield. There are grants and loans available if you know where to look.

Loans and grants

  1. Government start-up loans and grants

 

  • Loans

The government offers loans to those looking to start their own business, but always check the information carefully before you apply.

Government start-up loans start from as low as £500 so they really can help any small business. The most you can borrow is £25,000 and all loans have a fixed interest rate which is currently 6% per annum.

There are many companies who offer a government start-up loan and you can find out more here

Grants

You could also apply for a government grant, and this is something you would not have to pay back. With a grant you often have to have partial funding from another source so you won’t be able to apply for the full funding you need.

If you secure a government grant you will need to tell them exactly what you want to spend the money on and you may be asked to prove this. They do give preference to certain businesses and companies you are involved in exports and also to businesses which offer a niche market.

One drawback of a government grant is that they are obviously very popular and you will be up against a lot of competition. There is no guarantee you will be given one.

The application process is also very detailed and complex.

You can find out more about government grants and loans around the country here

  1. Bank Loans

Most banks will help out a small business, particularly if they think they can encourage you to use them for your business banking.

Applying for a business loan isn’t quite as straightforward as applying for a normal loan. If you want to apply for a business loan from the bank you will need a detailed business plan.

In this you will need to outline:

  • information about your business market, including your targeted potential customer base
  • information about your products and services, including pricing
  • details about marketing and how much you plan to spend
  • details about the set of the company, any partners and who the management team comprises
  • a detailed plan which shows how you plan to progress the company over the next 12 to 24 months.

If you approach the bank they will probably help you identify all the areas you need to cover in your plan.

With a bank loan you will be given a monthly payment plan which you will be expected to adhere to. If you fail to make your repayments the bank could take some of your business assets in exchange so always check out what the penalties are for non-payment.

If you do run into difficulty paying off your loan approach the bank immediately as they may be able to help you to keep your business going.

  1. Angel investors or venture capital

Angel investors are people who have money which they are willing to use to help small businesses. They will put money in to your business, often for a share of the profits, and will offer you practical help and advice to get your business running.

You will need to find an investor who is interested in your type of business or they may not be able to help you.

Venture capitalists can also help you with your finance, but the set up is a little different. They will usually provide backing for the whole term of your business, not just during the initial start up, and they will only invest if they think your start up offers the potential for high growth.

  1. Crowdfunding

The internet has opened up a lot of new opportunities and one of those is crowdfunding.

There are many business who started off by using crowdfunding to finance them, but don’t think this is an easy option for quick finance. There is a lot of interest in crowdfunding so you will need to make sure that as many people as possible find out about your business and what it offers.

You will need to offer the investors something, such as a return on their money or a discount for life, and this all needs to be documented to protect both sides.

There are many avenues open to small businesses and if you’re not sure where to start, try contacting local business organisations such as the Chamber of Commerce, as they will have plenty of advice to offer, including where you can obtain finance for your startup.

 

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