Trying to find funding is one of the hardest parts of starting a business and can stop many would-be entrepreneurs in their tracks before they even begin.
Recently the government unveiled plans to force big banks to offer advice on alternative funding when rejecting a business for a loan. With that in mind, here is a list of possible funding sources that you might want to look into.
Why you need to write up a business plan
First of all, make sure you write a solid business plan before you approach anyone for funding. You need to be able to produce a cash flow forecast for the first few months, although some lenders will want a forecast for the first 12 months at least.
Even if you don’t need funding or plan on applying for a loan, this step is a good way to work out your next move and plans for growth. It’s also required by some banks if you want to open a business account so don’t skip this part when starting up.
Business funding options:
Loans and finance
Bank loans and overdrafts: These are some of the most common ways that small business owners access funding. Many entrepreneurs will apply for loans while opening a business bank account.
Credit card: Many business owners use a business credit card specifically for business expenses. This will make the credit card statements easier to keep as records to claim against tax later on. It’s also better to keep it separate from your own credit cards for clarity, like you would with a personal and business bank account.
Credit unions: You can apply for finance at a credit union, an alternative to a bank or building society.
Family and friends loans: Some business owners will ask family and friends if they would like to invest in your business rather than keep their money sitting in a savings account. This money is then at risk of being lost of course, which could affect relations with whoever has invested so think carefully about this option.
Bridging loans: A bridging loan is a ‘short term’ finance option of at least £25,000. This is usually secured on a property over a term up to 12-18 months. A bridging loan is a handy method of gaining finance to bridge cash flow gaps. As long as you are sure that you can repay the loan before the end of the term, this could be a good option.
Commercial mortgage: If you want to buy a commercial property, you can take out a commercial mortgage. If you own a commercial property, you can also free up some equity in order to gain some cash to fund your business.
Re-mortgaging personal assets: One way to introduce long-term capital is to remortgage or second mortgage a property with substantial equity. However, this will increase your monthly outgoings and the property then becomes at risk if you can’t keep up with repayments.
Enterprise finance scheme: A government scheme to help small businesses get funding.
The Prince’s Trust: To qualify you need to be a UK resident between the ages of 18-30, unemployed or working less than 16 hours a week. The Prince’s Trust will provide you with advice and help with funding for your small business idea.
Business partner: If you find a business partner, you can share the cost of funding the business. You can also benefit from their experience and knowledge in starting and running the business.
Crowdfunding: A funder will find a group of many investors who are willing to invest a small amount of money each, to spread the risk factor for each. Businesses often need around two years trading figures for crowdfunding.
Have you struggled to get funding for your small business? What advice would you give others? Share your thoughts in the comments below.
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About The Author
An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.