When it comes to starting up a small business, funding is often one of the most difficult aspects of the experience. Reaching out to potential investors or lenders and trying to explain what could be a very unique or out-there idea can be frustrating, especially if they’re just not biting. Luckily, there are plenty of different ways that you can fund your business, and not all of them involve applying for small business loans. Let’s take a look at 8 of the different ways you can fund your small business.
1. Small business loans
Naturally, if you’re looking for funding for your small business, your first port of call should be a small business loan. Various private lenders can provide these, and you can also seek them out from the UK government. You’ll need to thoroughly research the lender’s particular requirements, as well as making sure your personal and business finances are in order. It’s also a good idea to assemble a bulletproof business plan so that you can show lenders you know exactly how to run a business; investors like to see their money is well-spent, and lenders are no different.
2. Personal loans
If you don’t want a small business loan – or if, for some reason, you can’t obtain one – then you could always turn to personal loans. Many lenders will provide loans even if you explain that you’re going to use them to augment your business funding, and it doesn’t necessarily matter how much you want to borrow, either. Even £500 loans can help you to start a business, especially if you’re just using the loan to cover extra expenses other funding methods haven’t managed to cover. You should think about personal loans if business loans haven’t panned out for you.
3. Asking family or friends
Your family and friends could be in a financial position to help you start your business. You won’t know unless you ask them, so it’s definitely worth approaching those close to you to ask if they’re willing to help you. They don’t have to invest without a return; you could treat them as investors, giving them a portion of the proceeds if your business succeeds. It’s a good idea to treat this funding option like you would any other, and build a great business plan you can show to people you approach, even if they are your loved ones.
4. Angel investors
You may have heard the term “angel investors” before, especially if you’ve watched the popular BBC TV show Dragons’ Den (although the actual process of angel investment is very different to the show). In essence, angel investors will provide you with funding for your business in exchange for a stake; this is likely to be a flat percentage of your profit. This is a good option to take if you’re unable to secure traditional business loan funding and you don’t have other avenues to explore, but you really believe in your business and are passionate about it.
You’ll need to be extremely careful if you’re going to look to crowdfunding as a source of funding for your business. Crowdfunding is only appropriate for certain kinds of businesses; often those with an ethical slant or those with a strong customer focus can reach their crowdfunding goals, but if you’re starting a business with an obscure purpose or a corporate air about it, you may not be successful. Still, this can be an excellent way to raise money to start your business as long as you construct your pitch well and listen to feedback from your backers.
6. Business incubators
A business incubator provides a young startup with the resources it may need in order to thrive. Incubator providers know that it’s hard for startups to procure funding, so even if your idea is somewhat outlandish, you may be able to find funding from an incubator. However, it’s worth noting that it’s far from easy to take this route. Incubator investors are even more gruelling and difficult to please than other kinds; this is, after all, a fairly high-risk venture for them, so they want to know that they’re putting their money into something worthwhile.
Sometimes, the government will provide you with a grant in order to fund your business. This usually only happens if you can prove that your endeavours could be of significant public or civic benefit, i.e. if you’re researching something or providing a public service. Still, it’s well worth looking into grants, as they could significantly reduce the tax you have to pay or even provide you with a lump sum of cash. It’s worth noting this isn’t an appropriate avenue of funding for all businesses; in fact, most private enterprises may struggle to obtain a grant.
8. Guarantor loans
If you’ve explored lots of other avenues of funding and been turned down for all of them, then guarantor loans may be for you. These loans are not, as the name might suggest, “guaranteed” to work for you; there’s still a high chance you could be turned down if you apply for them, especially if your business proposition is not airtight. Instead, guarantor loans often mean that a third party, sometimes another business and often an individual, will assume the responsibility for the debt if you default on it. If you know and trust someone that can act as your guarantor, this can be a good route to take.