Starting a small business is a dream for many people, and when you finally decide to take the plunge and make it happen you’ll suddenly have a lot to think about and organise. One of the most important considerations is how you will fund the business. Securing funding is one of the purposes of writing a really solid business plan. You need to be able to demonstrate how your business is going to make money and set realistic goals to meet those projections.
So what are your options for raising the cash to get your business off the ground? Below we run through some ideas to get you started.
One of the most obvious ways to fund a business is to use personal savings. The benefits of this approach are that if you have the savings then the money is easily accessible, you don’t rack up any debt and you are only accountable to yourself for the success of the business once you invest the money. The down side is that if the business is not a success you may not have any savings left to fall back on – so there is some risk involved.
If you want to fully or partially rely on personal savings to set up your business then it’s a good idea to have a dedicated savings account to work towards your savings goals. You can save an agreed amount of cash annually with a business banking savings account, or you could consider opening a Cash ISA to save up to the annual limit tax free – these are just a couple of options so it’s best to seek some advice about what the best savings plan for you will be.
Borrow from friends or family
Borrowing money from friends or family is one of the routes some people take to fund their business. Although this approach can work for some people, it’s worth noting the inherent risk of becoming financially accountable and indebted to someone you are close to. You need to have very frank discussions about how you will pay this money back, especially in the case that the business is not a success.
The personal implications of borrowing money from friends or family make this one of the riskier options, and you should think carefully about whether this is the best way to fund your business. If you do use this approach, ensure you have an official and mutually agreeable contract in place to arrange for the loan to be paid back.
Apply for a business loan
You can apply for a business loan specifically to support your business in the start-up phase. A small business loan can go up to around £25,000 depending on what you need to get you off the ground. A loan could help you to buy machinery, find premises or just cover the costs of creating a first run of your product.
The pros of a business loan include getting a decent lump sum to help you get started and the fact that you are borrowing from an independent organisation that you have no personal ties with. However, you need to ensure you understand the terms of your loan and be sure that you have a plan for paying the money back – including knowing that the interest accrued is going to manageable.
Apply for funding
As an alternative to bank loans or borrowing from someone independently, there are quite a lot of grants and funding opportunities available for small businesses. You may find that your local government offers funding for new businesses in the area, or that they can point you in the direction of potential funding sources.
An interesting business funding opportunity for companies at least one year old and currently turning over between £50,000 and £500,000 is the free to enter new Small Business Grants initiative. It gives away £5,000 every month in a free-to-enter competition. Apply now by clicking here
If you are aged 16-30 you may want to explore the Prince’s Trust Enterprise Programme, which can offer financing and support to unemployed young people with a business idea. You can also research government grants or sector specific funding opportunities. Alternatively you could approach investors within your industry and offer them a partnership or investment opportunity. If you can secure funding or investment you may also get additional support and advice to help ensure that your business is a success, which can be extremely valuable and potentially even worth selling a small percentage of your business for.