6 Ways to finance your start up
Whether you’ve got a great idea that you want to turn into a business, or you simply want to be your own boss, starting your own business is exciting. However, doing business does cost money, and the chances are that you’ll need to source funding to support your business journey.
There are many different ways to secure the funding you need, which option you decide to take will depend on the amount of cash you need and the nature of your business.
The first step in understanding which options are right for your business is to know how much money you need, what you need it for, and how it will help you in the short term and long term.
In this short article, we explore the different ways to finance your start up, for new and aspiring business owners.
Ways to Finance your Start Up – Your Options:
Bootstrapping is a term used for building a business without any external investment. Bootstrappers rely on their personal finances and typically start their own businesses while continuing in employment. This enables them to use part of their salary to fund their business venture and provides them with financial stability.
Personal sources of finance in bootstrapping include personal credit cards and overdrafts, savings, and sometimes financial backing from friends and family.
Bootstrapping is a popular way to finance your start up, as this option carries the least risk.
Your bank will be your first port of call for external funding. Although banks generally don’t lend to businesses with little or no trading history, they may still be able to offer you a business transaction account which may include an approved overdraft limit and a business credit card.
Using a business credit card opens up a line of credit for your business and at the same time, it helps to improve your credit score for future borrowing. Be mindful of interest rates, as they can be expensive. Pay off your balance in full each month to avoid hefty charges.
Overdrafts work in a similar way and can be very useful as long as you stay within your approved limit and pay back what you can, when you can.
Start Up Loans
A Start Up Loan is a personal loan for business purposes. This is a popular option for entrepreneurs because loans range between £500 to £25,000 and the interest rate is fixed at 6% per annum. The loan can be repaid for a term of 1 to 5 years.
To be eligible for a Start Up Loan, your business should be trading for less than three years.
There are some great advantages to taking a Start Up Loan, for example, your loan advisor will be on hand to provide support and guidance throughout the application process. This support includes advice on preparing your business plan, guidance on your cash flow forecast and expertise in creating a personal survival budget. Furthermore, Start Up Loans have a range of templates to help you get started.
Alongside funding, Start Up Loan customers are also offered 12 months of mentoring support and access to a range of special business offers.
Be aware that Start Up Loan applicants must be over the age of 18, and a credit check will be completed.
SWIG Finance is the South West’s Business Support Partner for the British Business Bank’s Start Up Loan Scheme. Through the Scheme, new and early-stage business owners can borrow up to £25,000 per business owner.
If you would like to explore this option further, please visit our Start Up Loans webpage for more information.
Crowdfunding is another useful way of raising funds for your business, especially if you have an interesting story to tell.
Typically crowdfunding works by a large number of individuals contributing small amounts in return for rewards. Rewards usually take form of merchandise or services from your business.
Crowdfunding does require heavy marketing and therefore you should consider how much time you can invest without losing sight of your main goal to generate profit.
To make the best use of crowdfunding, we would recommend creating a solid campaign strategy in advance.
Small Business Grants
Grants are non-repayable sums of money awarded to businesses to help meet specific needs. The type of grants you may be eligible for depends on the nature of your business.
Whilst grants appear to be a very attractive source of funding, it’s worth noting that there are a variety of schemes out there, it is likely that each scheme will have very particular eligibility criteria and will not be suitable for every business.
Another thing to consider when sourcing grants is that it is a time-consuming activity. If you decide to take this funding route, be sure not to lose sight of the primary need for a business – achieving financial stability with profitable trading.
Typically, grants are available from the government. Your local council will be a great place to find out what might be available to you.
Venture Capital funding generally involves investors taking an equity stake in your business in return for upfront cash and hands-on experience.
Investors will be looking for businesses with high-growth potential and they are usually on hand to share their expertise to help your business evolve faster.
Whilst there are a lot of benefits that come with having investors, there are some downsides too – for example, giving away stakes in your business means that you no longer have full control over it.
This type of investment can be complex, and we would recommend seeking professional advice before making any commitments.