Every business has to raise capital to get off the ground. You need money to buy equipment, pay employees and market your business to find customers. For small businesses, becoming profitable can take a while. This is particularly true for tech startups, even big platforms like Twitter can record large net losses. So if you own a business and need funding, you should explore every possible avenue for raising finances in order to grow and thrive. Here are the 10 most fruitful options to consider:
- Bank loan
If you can get a bank loan, then that’s a great way to finance your business. Bank loans for small businesses can be difficult to obtain, however. Banks award loans based on clear details of when and how you will pay off the loan, as well as the strength of your business’s credit history. If you’re just starting up, it’ll be trickier to build up a good personal or business credit history, but it can be done.
- Personal financing (bootstrapping)
If you have money in your account, or if your friends or family are willing to loan you money, then this can be an easy and fairly secure way of funding your business. If you can self-fund, you don’t have to pay interest on a loan and the money is no-strings attached, and if you get a family loan then generally this can be done on favourable terms. A business model that works well with this method of financing is called “bootstrapping”, which involves using your resources to make a viable product, putting it on the market as soon as possible and using customer feedback to improve it.
- Asset-based finance
This involves borrowing against assets your business owns, from equipment and premises to accounts receivable. It’s basically like a mortgage. If you fail to pay back the money, the assets can be seized as collateral. Many financial services offer this option to businesses, as well as regional and national investment banks.
Just as the name suggests, crowdfunding is about getting many people to loan you money through sponsorships. There are various crowdfunding sites such as Kickstarter and Crowdcube where you can set up pages where people can donate. Some companies choose to give rewards to donations of a particular amount, such as access to special content or previews of upcoming products. The crowdfunding option necessitates using social media to boost awareness of your crowdfunding campaign as much as possible. It also helps for your business to be producing something eye-catching that a large number of people will be excited about and want to invest in.
- Peer-to-peer lending
Peer-to-peer lending is similar to crowdfunding in the sense that it involves multiple people providing funding, but differs in the sense that the money obtained is a loan. You pay the money back with interest, rather than giving the contributors rewards or content. This means that you won’t have to rely so much on the goodwill of your company’s fans, but also that you will need to demonstrate a watertight financial plan and a detailed business model to gain support. Interest on these crowdfunded loans will need to be managed to ensure that they don’t become too expensive.
There are many opportunities for grants for small businesses. If you have a USP or are working in an innovative field, then many organisations may be interested in giving you a grant. The cost of grants is normally in terms of time and effort finding and applying for grants, as well as the strings attached to the money, which may involve working with other businesses and receiving input from the investors.
- Tax help
As a small business, you can get help with investment by making use of tax breaks and incentives, making it more attractive for investors to put money in startups that are considered riskier than other businesses. For example, the Seed Enterprise Investment Scheme gives investors in startups tax relief of 50% of their investment, with no capital gains tax to be paid on the profits made from the investment. You should know about and use such schemes as and when you can.
- Credit card
Funding a business with a credit card isn’t ideal. You’ll have to plan strictly to make sure you keep up with repayments, otherwise the monthly charges will quickly become expensive. This is good for small amounts of investment over short periods and some entrepreneurs have used credit to their advantage, but use it with caution.
- Angel investors
Angel investors can provide vital finance for start ups in return for an equity stake, and generally are more hands-off than venture capitalists (who normally don’t invest in startups). Many are entrepreneurs themselves, with experience of running businesses and a sense of humility about how difficult getting started can be. But they will also probably want specific details about your company and the direction you intend to take it in. There are various angel investor networks where investors can be contacted.
- Non-monetary financial assistance
Any financial assistance that isn’t directly in the form of cash. There are for example government innovation vouchers you can access which can be used to pay for expert advice to help you grow your business. Research and development tax credits are another way to mitigate some of the costs of starting your startup.
Hopefully you now have a better sense of the various ways of funding a startup, and some ideas of how you want your startup to be funded in the near future.