To help you kick-start your business, there are several ways in which to raise finance to get your idea underway or to further accelerate your growth.
At the time of writing, these are the most common routes to explore for finance. However, new offerings for finance are constantly evolving in line with financial innovations – so it is recommended to keep a close eye on what is happening. For now, these are the recommended routes, meaning that you don’t have to rely exclusively on traditional avenues, such as banks, to raise funds:
Keep it in the family
When transforming a new idea into a business, many people first go to their friends and family to help raise funds. Whilst many start-ups do this to help fund their new venture, it is recommended that you seek legal advice to ensure that you capture all aspects of the agreement in writing. This could be a simple contract between parties, including a detailed business plan and financial forecast for their review.
This will help to prevent challenges that may appear in the future, protecting your business and the investments of your friends and family. Most importantly, it will help you to maintain your personal relationships.
Business Angel investment
Angel Investments is a means for private and industry investors to explore opportunities to use their personal finance in exchange for shares in your business. Their expectation is usually for a return on their investment between three and eight years.
The good news here is that Angel Investors typically play an active role in your business, offering support and guidance to your strategy and plan. Obviously, then, an investor familiar with your industry would in most cases be the best choice.
For more information, the UK Business Angels Association, here, is a good place to start.
One option, rather than asking a few people to contribute large sums, is to ask a large amount of people to each invest smaller amounts. This is known as Crowdfunding and can appear in different forms:
- Equity is when the investment is exchanged for shares or for a stake in the business.
- Debt is when the money is provided with the view to receive money back with interest.
- Donations are for when people believe in your idea and base their contribution on their belief in that cause. Donors will expect nothing in return for their provision of funds.
Grant and Loans for Start-Ups
The government aims to accelerate the UK economy and as such provides grants and loans for businesses.
Grants are where a portion of taxpayers’ money each year is saved to drive new business ideas. With the money offered nationally, you will need to apply so that the government can assess whether you are eligible for the grant.
Start Up loans are provided through a government scheme aimed at entrepreneurs, with the average loan estimated at £6,000. Applications can go to £25,000 however, supported by twelve months of business mentoring. The loan must be paid back within five years, typically with an interest rate of 6%.