Starting a business is an exhilarating endeavour, with various startup finance options to help you overcome the early challenges and uncertainties.
In this guide, we’ll explore various financing avenues available to you, so you can make informed decisions to help you start your business in the strongest position possible.
Self, friends and family
Not everyone can use the finance options we’ll discuss in this blog post, so we’ll start basic. You could finance your business through your personal savings and investments from friends and family.
While this approach isn’t as strong as official loans, grants and investments, your savings are yours to use at your discretion, while family and friends might be more willing to help you out early on than traditional lenders and investors.
However, you must remain professional and transparent, even with people you know. They must understand the opportunities and risks open to them – it’s only fair.
Meanwhile, you should only personally invest what you can afford to lose. Businesses can fail for reasons beyond our control, so while you should hope for the best, you should always be mindful of the worst.
Government grants and support
The government offers various grants, loans and support programmes designed to help startups and small businesses.
Government grants are available in all kinds of forms – from reduced costs and free equipment to simple cash rewards. However, they generally come in the form of a direct grant, which is money given to your business to cover essentials, such as training, equipment or reaching new markets. You can search for grants with the business finance support finder.
Alternatives to business grants include the following.
- Equity finance: This is where you sell a share of your business in return for finance. Some schemes, such as the Seed Enterprise Investment Scheme, offer up to a 50% reduction in income tax on investments made in new businesses up to £100,000, which can help attract investors.
- Loans: Backed by the government, the Start Up Loans scheme offers personal loans of up to £25,000 with a 6% interest rate and access to free business support and mentoring.
Bank loans and business overdrafts
Traditional bank loans and overdrafts are always solid options for startups with a solid credit history and the necessary collateral to secure the loan.
Banks offer various loan products tailored to small businesses, which vary in several ways. Always research thoroughly and speak with a financial adviser before choosing a certain package to ensure you pick the optimal one for you.
Venture capital (VC) funding
Venture capital firms invest large sums of money in high-growth startups with the potential for significant returns. VC funding is typically provided in exchange for equity ownership and often involves multiple funding rounds as the business scales.
To improve your chances of securing funding, prepare a robust business plan and demonstrate scalability. Fundamentally, it’s about being transparent and exuding confidence to persuade investors that you can give them worthwhile returns on their investment.
Crowdfunding
Crowdfunding platforms like Crowdcube and Kickstarter are innovative ways to raise capital. Crowdfunding involves raising funds from many individuals, each contributing small amounts of money.
This is a particularly good avenue for innovative and unique products, consumer-focused goods, creative projects, technological innovations and community-orientated initiatives, as you can create a significant buzz with these ideas.
Accounting and business advice for startups
At James Scott, we specialise in empowering startups to ensure they get the best start possible in business. We’re helping them streamline their operations daily, optimise cashflow and make smart business decisions.
We handle their accounting and tax work so they can focus on creativity and innovation. And, of course, we help new businesses choose the startup finance option that is correct for them.
Need our help as you begin your business journey? All you have to do is get in touch with us today.