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How to Fund a Business

You’ve got to spend money to make money. It’s not a tired old cliche — it’s a tried-and-tested formula for success. To secure your future, you need to invest money in your company.

Businesses do not grow without financial investment.

You may not need much capital — or you may need a lot. Either way, that money has to come from somewhere. This guide explains the funding options available for your business.

Funding Your Business with Angel Investors

Angel investors can be individuals or groups of individuals that have a lot of money. They’ll give you some of their own money in return for a percentage of your business. If you’ve ever seen the famous TV show Dragon’s Den, these are angel investors. The benefit of angel investors is you get access to high levels of funding — which you might be able to increase — guidance from mentors and a low personal risk to your finances if your business fails. The downside is that your exchange with an investor will give them some form of control over your company.

Suitable for: Companies with good growth prospects.

Funding Your Business with Venture Capitalists

Venture capitalists are next-level investors. They’ll provide financing in a similar way to an angel investor, but instead of stumping up their personal wealth, their investment usually comes out of an organisation, like a bank. Venture capitalists can provide the largest amount of investment for your business — we’re talking millions of pounds. If you need money, and lots of it, venture capitalists are your best bet. However, that money is very tough to secure. You need to have a bulletproof business plan and prospects that impress. 

Suitable for: Startups looking to become major industry players.

Funding Your Business with Personal Savings

You don’t need to go to other people or organisations for help. You can start your own business using your own financial support. Personal savings can be used as funding for your business. The biggest risk factor here is that if the business does not succeed, you have lost your personal finance. The benefit is that it’s the easiest form of investment to acquire with no loss of control of your business or obligations to third parties. 

Suitable for: Various businesses depending on the level of your personal financial health.

Funding Your Business with Credit Cards

Credit cards are used to fund all sorts of purchases that people do not currently have the capital to pay for but plan to in the future. Business expenses are no exception. When starting a business, you can use credit cards to make purchases and fund your early projects. Like personal funding, this option is easy to access and quick to deploy — providing you have a good credit rating. It’s also a high personal risk, as you need to pay off the credit cards before interest accumulates.

Suitable for: Low-level investments in businesses that can quickly turn a profit.

Funding Your Business with Small Business Loans

Small business loans are available from banks and lenders. They range between £10,000 and £5 million but typically fall around the £100,000 bracket. These loans are built to support business development and feature great options for companies that require a healthy chunk of early investment. They’re important funding options for those that don’t want to get involved with investors or have been unable to attract any. The downside of small business loans is they can have high-interest rates. Like mortgages, you’ll pay back a good deal more than you borrowed.

Suitable for: Medium-sized enterprises that need healthy amounts of money.

Funding Your Business with Small Business Grants

Small business grants are payouts from organisations such as charities, non-profits, the government or other businesses that are seeking to support specific projects. Sometimes this will be in a particular industry, or it might be for local companies. At the moment, those in green energy or sustainability will find grants widely available. If you can acquire grants, you'll be given financial aid to a set amount with very few strings attached. The main disadvantages are that these grants are not available to everyone, the application process is often long and laborious, and competition for grants can be very fierce.

Suitable for: Businesses that are breaking the mould.

Funding Your Business with Family & Friends

Family and friends can essentially act like angel investors. They can provide you with loans (or gifts) to start your company. If you have access to this kind of funding, it can be a great way to start quickly without too much paperwork. The terms of funding through friends and family can vary wildly, as it’s up to you and them to set the rules. The major problem with this kind of funding for your business is that if it goes wrong, you’ve lost the money of your loved ones, which can cause rifts and relationship issues. People may try to change the rules as well, demanding more in return for their money. Even for such personal types of funding, it’s always recommended you draft contract agreements. 

Suitable for: Businesses with very stable market goals.

Funding Your Business with Crowdfunding

Crowdfunding is the process of gaining a large number of micro-investments from many individuals. The concept is quite simple. You attract your typical consumer and ask them to give money towards your project to help get it off the ground. Lots of little investments can result in a large amount of money. Crowdfunding can work really well, as you don’t have to give up control of your business or agree to interest repayments on loans. However, it only works if you have something that people are eager to see developed. Your business idea has to be something they’re willing to invest in personally to see brought to life. Sometimes you may need to offer something in return, such as free access to your service once your business has been created or a free version of the product they helped to realise.

Suitable for: Consumer-focused innovations.

Are you ready to secure funding for your business yet? Download our FREE roadmap to business success and find out how far down the road to starting a business you are.

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