8 Ways to get funding for your business

If you have a mind for business, a great idea and a work ethic to match, there’s never been a better time to start your own business. Companies are being sold to investors for, in some cases, more than 30 times annual revenues.

Starting a business is daunting though. Where do you start? Chances are, somewhere along the way, you’re going to need funding. Here’s a list of some good ways to get the cash to kickstart your company.

Image: Aaron Burden

Bank Loans

Pros: This is one of the most common ways people fund startups. Interest rates continue to hold at record lows, which means you can get a considerable amount of money without having to pay through the nose for it. Often, when banks are offering loans, you have to put an asset of your own on the line, for example a house, in case you can’t pay the bank back. However, this is happening less and less. Barclays offers up to £100,000, without you having to risk your hard-earned assets. Remember to do your research, because some banks may offer different rates and payment schemes, depending on how long you think you’ll need the money for.

Cons: Banks will often do a lot of research into your idea and will expect a great deal of your own research to be done. You should probably be doing that anyway if you’re thinking of starting your own business, so that’s not necessarily a con. However, all the attractive conditions on loans can lure you into taking out more money than you need, while you’re under the impression that you don’t have anything to lose. Interest rates may increase in the future, which means you will be liable to pay a lot more money than you’re used to on your loan. If you default on payments, you could end up with a bad credit rating, meaning you will have trouble getting a credit card, buying a house, or even renting accommodation. When you’re taking out bank loans, prudence is the key word. Always take the bare minimum you need, as you never know how your business will turn out. After all, you can always take out more if you need it.

Your own savings

Pros: Interest free and with no consequences if you run out, your own savings is a great way to fund a business, and it signifies to interested investors that you’re fully committed.

Cons: Saving is easier said than done, especially if you’re living in London.

Friends and family

Pros: A huge number of companies start off with funding from your friends and family. Often the pro is that it’s the only money available.

Cons: As the old saying goes, don’t mix business with pleasure. All sorts of issues come up when you’re borrowing money from your friends and family if it all goes south.

Accelerator/early-stage VC

Pros: Accelerators are organisations that will invest a small amount of money, usually around £10,000 and up to several hundred thousand pounds. They will provide advice, sometimes in-depth training, a network of entrepreneurs and investors you can ask for advice from and, sometimes even office space.

Cons: Accelerators provide amazing support and the rate of success of accelerator-backed companies is extremely high in comparison to the average startup, but they don’t offer support to every entrepreneur. They’re normally focused on tech-enabled ideas or patents, which often means you either need to know a lot about software or engineering or have a partner who does.

Most don’t offer their support for free. Accelerators exchange it for a stake in your company. That means that as your baby grows, they will have the right to a percentage of profits and to reap the benefits of the sale of the company in the future. While it won’t cost you much right now, it will be much more expensive in the future. Imagine you take out a £10,000 loan from a bank at a 10% annual interest rate. You’d pay £5,000 in interest over a five-year period. If you offer an accelerator 10% of your company in exchange for a £10,000 investment, and your company becomes worth £1,000,000 in five years, you have effectively given away £100,000.

Image: Sean Pollock

Angel Investors

Pros: Angel investors are normally people who started their own big thing ten years ago, got incredibly rich from it and are looking to get involved in the next one. They offer investments, in some cases up to £5,000,000, normally for a small stake in your company. They’ll provide advice and connect you to other rich people who can support your company in other ways.

Cons: They’re called angels for a reason: they’re incredibly hard to find. You’re going to have to cultivate an amazing network to find an angel investor and you’re going to have to have a very good idea to convince them to invest in your business.

Kickstarter/Crowdfunding

Pros: There’s a variety of different websites you can use to ask the general public for their support. I’m sure you’ve seen someone on Facebook raising money for their next 10k run. They’re easy to use and the money comes with few conditions.

Cons: People will often only contribute to causes if there’s a charitable element to it, so unless you can put a charitable spin on the use of profits from your business (which I encourage!), it might be difficult to raise money from crowdfunding.

Grants

Pros: Free of charge, and often coming with non-financial support from the organisation it’s granted by, grants are a great way to fund a business.

Cons: The fight for grants is incredibly competitive. Some charities that bid for grants have professionals’ teams dedicated solely to writing applications for them. It will take a lot of practice to get good at writing grant applications so expect a few nos if a yes at all.

Business Revenues

Pros: Anyone who’s read Sophia Amoruso’s Girl Boss knows that Nasty Gal, the online clothing company, was funded from revenues of the business. This is incredibly attractive to investors because it shows that your business model can stand on its own two feet. This also comes at no extra cost to you.

Cons: It’s incredibly difficult to generate revenue with no funding. How do you start selling products if you don’t have the money for materials? That knowledge is reserved for only the wiliest of entrepreneurs.

Words by Katharine Hidalgo