Ten ways to finance your business

The bank is not your only port of call when it comes to raising funds to start your business. Find out the options available to you.

The bank is not your only port of call when it comes to raising funds to start your business – there could be better and cheaper alternatives, depending on what you need. Find out what options are available to you and how you can get your hands on the money.

1. Friends and family – They are more likely to back your business when others say no, but think carefully before borrowing money in this way. If the business fails, the repercussions can be harder to bear. Draw up a formal agreement outlining how and when you will repay the loan and what rate of interest is to be added.

2. Use your personal assets – Using personal equity, such as savings or re-mortgaging your house can give you the freedom to run your business your way. However, it’s important to draw up a business plan, much as you would do if you were seeking external investment, mapping out when you expect to see a return and what you can afford to lose.

3. Bring in partners – If you’re a sole trader you could consider taking on partners to raise finance. You’ll need to negotiate what share of the profits each person will receive, depending on the amount of capital they’ve invested. You’ll also need to ensure each partner’s role is clearly defined. A written partnership agreement should be drawn up before any decisions are made.

4. Persuade trading partners to pay upfront – Larger organisations can sometimes be persuaded to pay upfront to fund a project or product you are developing if they need it for their own business.

5. Government grants and awards – Some are operated on a nationwide basis, but with many grants eligibility depends on where your business is located. Your company will also have to meet a range of criteria. Grants are normally available for specific purposes, such as investing in equipment, whilst some are available for specific industries. Check out our Grants section for more information.

6. Leasing and hire purchase – If you need to raise cash to buy equipment, consider spreading your costs with leasing and hire purchase options. This allows you to use an asset over a fixed period, in return for regular payments.

7. Small Firms Loan Guarantee Scheme – This is designed for businesses that have tried, but failed, to get loans from other sources. Some £5,000-£100,000 is available and the loan lasts between 2 and 10 years. To find out more, go to our Funding your business section.

8. Enterprise Investment Scheme – This is a Government scheme to encourage individuals to invest in growing companies, and provides generous tax incentives. The minimum investment from each investor is £500 and the maximum £150,000. Contact the Enterprise Investment Scheme Association for more details.

9. Check out small ads – The business-to-business section of newspapers, such as The Guardian and Financial Times carry advertisements from people wishing to invest in companies. You could try advertising for funds in the same way. But bear in mind there are legal restrictions on what you can include in the ad – check first with your solicitor.

10. Enter competitions – There are many competitions on offer to start-ups – not only can you receive a cash prize, but the exposure you gain can bring you to the attention of a potential investor.

Adam Wayland

Adam Wayland

Adam was Editor of SmallBusiness.co.uk from 2006 to 2008 and prior to that was staff writer on sister publication BusinessXL Magazine.

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