You have a great new idea for a business, but where can you get the money you need to get your new company off the ground?
Here are five ways:
1. Bank loans
Since the credit crunch, banks have been reluctant to lend money to new businesses that have no track record. To stand any chance of getting a bank loan you will need a detailed business plan, including projections of your monthly income and expenditure, as well as when you expect to turn a profit.
When it comes to borrowing you may consider a business loan, overdraft, or using a personal credit card.
Each of these options will have its own benefits and risks, in order to decide which would be best for your individual circumstances you should speak to your bank manager or an independent financial adviser.
2. Loans from family and friends
As the high street lenders have reined themselves in, the bank of mum, dad, uncle or granddad has stepped in to fill the gap. Supportive relatives who want to give a helping hand are an invaluable source of financing, but it’s important that you have an honest discussion with them about the risks involved. You need to be clear that your business may not be successful and therefore they shouldn’t invest more than they can afford to lose. Also, you both need to be clear about how quickly their investment needs to be repaid: for example, will they want their money back before you pay yourself more or expand the business.
This is a relatively new form of funding in the UK, where groups of people invest small amounts of money to back a project. There are a number of crowdfunding websites, including Kickstarter, Indiegogo and Crowdfunder. If investors like your idea then money could start flooding in. The Pebble, a watch app for smartphones, raised nearly $10 million. Pledges hit $1 million within 28 hours of Pebble launching its pitch – and it only wanted to raise $100,000!
4. Angel investors
Like the “dragons” on the TV, these are wealthy entrepreneurs who may be willing to invest in your business. You will have to give up a share in your company in return for them taking the risk to back your big idea. But apart from cash, they can also offer a wealth of experience and contacts that could really help your company develop. You can find angle investors through http://www.ukbusinessangelsassociation.org.uk/.
If you are looking for a bigger amount of money to finance a step-change in your business, say £1m or more, then you could approach venture capital investors. You can find venture capital firms through http://www.bvca.co.uk/.
Many people will finance their new business themselves, through savings or redundancy payments. But if you’re using the same pot of cash to finance your fledgling business as to pay your household bills then you could find that you can’t makes ends meet. You should ensure you have enough savings to tide you over without much money coming in for the first year of your business.
Although bootstrapping your business will take you longer to get it to where you want it to be that doesn’t mean you won’t learn a lot and have a great time along the way.