Your business idea is in place, you have done your research and are sure you have a winning plan. But before you get too excited it's time to think about funding.
Getting the right funding in place early can help you set up your company faster, and more securely – but where should you look and what are your options?
Here’s a quick run-through of some of the funding options available to you if you’re over 18 and live in the UK. Of course, many of these options are also available to you if you’ve already started your business and just looking for a financial boost to take your business on to the next level.
If you’re looking to start or grow a business, you might be eligible to apply for a government-backed personal loan via Startup Loans at https://www.startuploans.co.uk
All owners or partners in a business can individually apply for up to £25,000 each, with a maximum of £100,000 available per business. The average loan is around £5,000 and needs to be paid back within five years. It’s unsecured too, so there’s no need to put forward any assets or guarantors to support an application.
If you’re successful, you also get 12 months of free mentoring and some exclusive business offers to help you along the way.
The Seed Enterprise Investment Scheme (SEIS) allows business investors to claim generous tax reliefs on the funding of up to £100,000 in a single year, making you a far more attractive option for investment. To qualify you must have been trading for less than two years. There are complex criteria for this scheme and it is important to follow specific processes to remain qualified. We would advise on consulting with an Accountant before starting the process.
Finding a small business grant
First port of call is to google small-business grants schemes in your district, as many local authorities offer funding to startups launching in the neighbourhood. For example, the Kent and Medway council fund offers financial assistance of 0 per cent interest loans of up to £500,000 to eligible startups in certain regions. There are also regular competitions awarding funding to startups with game-changing ideas, which are all collated on the Innovate UK page.
Crowdfunding gives startups an opportunity to not only simultaneously raise money and generate publicity, but also to gauge interest in a product and develop it as the business grows. Crowdfunding comes in two different flavours:
If your business is product-based, crowdfunding through platforms like Kickstarter and Indiegogo offers a way to ensure a healthy number of guaranteed sales before you even begin manufacturing. Not only does this give you the capital needed to get your startup off the ground, but when the investor’s reward is the product itself, you won’t have to give up shares in your company.
Just make sure your pricing structure accounts for all of the hidden costs of producing and distributing your backers’ rewards.
Platforms such as Crowdcube and Seedrs allow you to raise cash by turning your supporters into shareholders. This is great for startups with a business that isn’t product-based, or for small companies that need to raise larger amounts of funding to expand. Investors on these platforms are given equity in your company, and so will likely invest more than a typical customer would.
Peer to Peer business loans
When it comes to handing out loans, large banks are typically risk-averse. As such, they don’t readily provide startup funding to businesses that haven’t yet proved themselves.
But other lenders aim to help young companies looking to expand. Funding Circle was the first peer-to-peer lender to launch in the UK and connects a small army of investors directly to new companies in need of cash: Qualifying startups are given easy access to unsecured business loans of up to £500,000. Zopa and RateSetter are similar to peer-to-peer lenders.
Angel investors are wealthy individuals looking to invest in startups at their earliest stages. Many angel investors have launched a successful business of their own. While you can always approach an investor one-on-one, it’s usually a better idea to pitch your startup to an angel-investment network. Here’s a list of angel investment networks in the UK, each of which specializes in different areas, business types, and industries.
A venture capitalist is an investor who funds small startups with very high growth potential. Almost every notable startup success story involves a VC, but this form of funding is rarer than most and usually only possible for companies that are expanding very quickly, or that have already had a round of seed funding from angel investors.
A venture capitalist also plays a large role in the operation of the company, becoming associates or partners. Understandably, many startups aren’t amenable to the idea of ceding a great deal of control over the direction of the company so early on, and courting this kind of investor can consume a huge amount of time and energy. The British Venture Capital Association provides a directory of venture-capital firms operating in the UK.
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