Funding a new business venture can be tricky, but also essential to help you kickstart the business. Some businesses for instance require stock or certain tools to begin, in which case funding is very important and it is useful to check your options and make sure that there no serious financial risks or implications involved.
Using your savings
Using your own personal savings is often the most sensible and low risk way to fund a new business. Many people will have a set figure in mind such as £10,000 or £20,000 or have a buffer of 6 months of savings so that they can invest in the business but still pay their household bills.
When using your own savings, you are not bound by any debt or have anyone to respond to. In which case, it is a healthy and low-risk way to invest money into a business initially.
It is also a good test of character and belief in your business, because you are able to ‘put your money where your mouth is’ by using your own money and nobody elses.
Friends and family
Many successful companies have been started thanks to the funds of family and close friends. The likes of Apple and Amazon were started by loans from parents and today, it is not uncommon to crowdfund from people that you know.
Especially for set up costs, such as setting up a practice, restaurant or shop, it is not unusual to receive funding from parents.
Of course, this comes with risks and money can get between family and friends and it can be a grey area. If so, it is recommended to have very clear guidelines in terms of the amount of money, equity, interest (if any) and repayment expectations, just to ensure that everyone knows what is involved.
For big scale startups – VC and crowdfunding
For those high risk and high reward startups, you may seek funding from venture capital and crowdfunding platforms. In doing so, you will usually typically give equity away in your business, but it can be an effective way to raise large sums of £500,000 or more.
Getting funding through VC requires quite a lot of due diligence and you will need to present a business plan, go through the motions and report back on a regular basis to your new investors and shareholders – which can be welcomed or add quite a lot of pressure to the daily running of your business.
Business loans, personal loans or credit
Many people seek a form of loan or credit to start or grow a business. The traditional process of going to your bank manager is very old school and people are more likely to apply online and your eligibility is based on the plans for your business, turnover, security and credit status.
You can use a business loan from 8%-50% APR, personal loans from 3%-50% APR or use credit cards which are free provided that you pay them off on time. See these loan providers for more information. You will often be given an overdraft facility but be careful with this since the charges and fees can add up pretty quickly.
You can also consider invoice factoring if you have received a big order in writing and signed for things like purchasing units, orders (common in catering, production, fashion and retail) and you will often be given up to 80% of the invoice value upfront and then you can clear the loan when your merchant has paid.