As any business owner knows, money and cash flow is the life blood of the business. Without proper funding in the first year of business almost all new businesses fail, so it’s really important to secure the money needed to get your business off the ground.
In this article we discuss the main funding options available to small businesses and startups. Depending on the type of start up or business some of the following options might be right for you. `
Government grants
There are various government grants available for small startup businesses. These grants can help you save money, lower startup costs to help your business grow. It’s a bit of a lengthy process, but it’s worth it to see if you’re eligible.
Government grants come in different forms, from tax reductions, free equipment to cash rewards. These grants are in place to help stimulate the economy and help generate jobs.
Some of the grants available range from equity finance, direct finance and soft loans. To find out more about government grants check out the GOV website to find out more.
Crowdfunding
Crowdfunding is a way of raising funds via online platforms rather than using the traditional means of gathering funds. There are various ways to crowdfunding including, peer-to-peer lending, peer-to-business lending, reward-based and equity crowdfunding.
Peer-to-peer lending involves investors lending money to an individual with the understanding that the money will be repaid with interest.
Peer-to-business is similar to peer-to-peer lending but with loans for businesses, instead of individuals, via investors, companies and government institutions.
Reward-based crowdfunding allows you to receive funds in exchange for giving your investors a reward, such as a product sample or event.
Equity crowdfunding is a process where people or a ‘crowd’, can invest in a company in return for shares in that company (this is a private company, one that is not listed on the stock exchange). By buying shares in a business, investors become part owners of that business.
Equity crowdfunding is different to other crowdfunding methods such as rewards-based, or donation-based crowdfunding. As a model, it provides a capital-raising method by offering potential financial returns on investment.
There are guides available online that can show you how to approach your crowdfunding campaign
Personal savings
To get your business off the ground the common way of getting money is to ask friends and family. Friends and family, if they can, are usually happy to give the money, or give it to you as a loan. If you do have any of your own money saved away this is also a good start!
The additional support in the early stages of a company, when getting funding can be at its most difficult will be a huge help.
Loans
A financing option that many start ups consider is taking out a business loan. To be considered for this you need to work out a business plan to present to the lender. Taking out the time to prepare a plan will increase your chances of being accepted.
You can take out a secured loan or an unsecured loan.
Secured loans basically means that you need to put up collateral in the form of assets i.e a car or a property. This to the lender provides more security for them and so rates are often lower. However, many startups do not have the necessary assets in order to secure this type of loan. An unsecured loan is a loan that doesn’t require any form of collateral although the interest rates may be higher than a secured loan.
You could also secure this type of loan using a guarantor, they may however base the amount you can borrow based on your credit score. There’s high risk involved, but could mean that you can borrow more.
Venture Capital
This is basically larger companies who invest in startup companies. They typically do this through joint venture agreements. The investing company may also be involved in the marketing strategy and the direction of the company.