Imagine a scenario where a great idea comes to you. You know you’ve got the skills and knowhow to pull it off, and the only thing standing between you and business success is financing. It’s not a unique scenario, as would-be business owners often struggle to raise the funds needed to give life to their ideas. According to 2018 stats from Small Business Trends, almost a third of small firms fail because they run out of cash. Yet many entrepreneurs are not aware there are actually several ways to finance a new business venture…
Unsurprisingly, most startups receive at least some funds from their founder’s own pocket. If you do have savings, this is a good place to start. You aren’t beholden to anyone else when developing your business, and it won’t be starting off in debt. If you need to raise more funds down the road, the fact that you ploughed in a chunk of your own money should convince would-be investors of your commitment to the venture.
There are of course significant downsides to sinking your own cash into a startup – not least what you stand to lose if your venture fails. Commit what finance you feel comfortable with, then cover any shortfall with the following ways to finance a new business venture.
This is probably the best-known way to finance a new business. Pretty much every high street bank (and a growing number of online lenders) may offer a business loan. Securing this kind of financing isn’t easy, but a small business loan can give you all the funding you need in your business’s early days.
Most lenders demand a business plan and financial forecast to assess your business’s viability. You may have to secure the loan against your house or other high-value assets because lenders view business loans as high-risk endeavours. Decisions on such financing can come slowly, and many applications will be turned down.
Money from friends or relatives
As far as ways to finance a new business venture are concerned, money from loved ones can be a great or terrible idea, depending on the strength and nature of your own personal relationships. In general, borrowing money from family or friends ensures more favourable terms. Loved ones will likely charge you less (if any) interest and may be more flexible on repayment schedules. Be aware that if things go wrong, you could be in trouble. Failure to pay back a loved one might damage your personal life as well as your professional one.
Startup grants or other government assistance
Successful startups and thriving small businesses are good for the UK economy, so the Government offers help for entrepreneurs looking for funds in the form of grants or special startup business loans. For instance, UK Research and Innovation (UKRI) gives out grants of between £25,000 and £10 million to foster innovation. To have the best chance of receiving a grant, your venture needs to be a novel one, ideally in an emerging industry.
Crowdfunding is one of the newest ways to finance a new business venture. Rather than seeking all your investment from one source, it’s cumulatively amassed from lots of people. Popular crowdfunding platforms include Kickstarter and Indiegogo. Prospective customers are persuaded to invest in your firm with the offer of rewards, which could mean some kind of discount on your company’s future products or services, for example. Crowdfunding campaigns rely on your ability to convince people of your firm’s viability, making them as excited about it as you are.