There are many possible sources of funding, each with pros and cons. To help you choose one, the initial questions you should ask yourself should be about how much money you think you need and then how much equity you might be prepared to sacrifice to get it. These two elements form the key considerations because they define the type of funding you may want to apply for. Here’s a list of the main funding options:
One alternative is to join a credit union. These bodies lend relatively small sums to individuals rather than businesses, so limited companies cannot currently apply. Usually you will have to save with them for at least three months. The Association of British Credit Unions (ABCUL) says that unions are seeing an increase in lending due to banks being more cautious. If you live in an area served by one of these credit unions, you might be able to avail yourself of their facilities.
Friends and family are a good place to start when looking for funding. There may even be someone with experience of running a business prepared to lend you the money and offer their help. However, you will need to draw up a written agreement specifying when the loan will be repaid and any interest payable.
These will vary from region to region and what’s available will depend on which sector you are in. You can get advice on raising finance and find out what loans are available in our dedicated business grants section.
Private sector grants
There are a surprising number of grants available from companies and organisations wishing to sponsor growth ventures within their specialist sector – but often you have to search quite hard to find them. One example is British Small Business Grants which is a free-to-enter monthly competition that gives small businesses a chance to win a £5,000 grant to invest in their company’s growth.
Many early start-ups use their credit card to fund expenses – for items such as travel, stationery, and petrol. This can be a good way to fund the early stages of a business – although interest charges can be relatively high.
If you are between 18 and 30 and unemployed, the Prince’s Trust offers loans of up to £4,000 for a sole trader as well as grants of up to £1,500 for people wanting to set up a business.
These investors provide risk capital, so-called because – unlike debt finance – they have no security and are last in line for repayment if the company becomes insolvent. In exchange, they will take a stake in the company of between typically ten to 30 per cent. The majority of angel investments will be under £100,000. For more information visit the UKBusiness Angels Association website.
If you’re not scared of a spot of public humiliation, then why not try fiery cohort of Duncan Bannatyne, James Caan, Deborah Meaden and Peter Jones on Dragons’ Den. Not only will get your hands on some much needed capital, but you’ll get brilliant free advertising for your product – if successful, that is.
Useful link: Small business startup funding – A guide to the options available to get your company through those early days.