Raising finance is often the first hurdle business owners have to jump.
The good news is that you don’t have to rely on traditional avenues such as banks to raise funds. Here’s a number of other ways you can secure finance for your start-up idea:
Crowdfunding is a way of raising money by asking a large amount of people to each invest a small amount of money.
There are different types of crowdfunding: donation, equity and debt. Donation crowdfunding is when people donate money to your venture simply because they believe in what you’re doing – they want nothing in return. Equity crowdfunding is when people invest in your company in exchange for shares or a stake in the business. Debt crowdfunding is when people lend you money with the expectancy of receiving their money back with interest. Find out more about UK crowdfunding
This is when an investor makes use of their personal disposable finance to provide equity finance to a business.
In exchange, the investor will normally take shares in the business. An angel investor will normally take an active interest in your business in order to see a strong return on their investment and will support you with their knowledge and experience. Angel investors expect to see a return on their investment within three to eight years.
Friends and family
Many start-ups turn to friends and family to help fund their new venture.
Before you enter into any business agreement with them ensure that you write everything down and seek legal advice if necessary – especially if the amount borrowed exceeds £100,000. A simple contract between parties will avoid any complications further down the line.
Don’t take your loved ones for granted – treat them in the same way as you would any formal business lender by presenting them with a robust business plan and financial forecast for the next six to 12 months. You must also clarify whether the family member or friend will have any financial liabilities for your business management.
The UK government is aiming to boost the UK economy by offering loans to aspiring entrepreneurs to get their businesses up and running, through its Start Up Loans scheme.
The average loan is £6,000, but you can apply for up to £25,000, and it must be paid back within five years, with an annual interest rate of 6%. Sir Richard Branson is also supporting new businesses with Virgin StartUp – offering loans with an average value of £5,000, to be paid back within three to five years at an interest rate of 6.17%.
The government sets aside a portion of taxpayers’ money each year to put towards business grants and funding new enterprise.
The money is distributed through national and local organisations that you apply to, and who then decide if you’re eligible for funding. For a full list of government grants check out the business finance support finder.
Guide to alternative funding
Discover 10 sources of funding for your business and how to apply in our essential guide for startups and small businesses.