Putting all of your business eggs in one basket is never a wise move. This is especially true in terms of financing your new business. Diversifying your financial resources will help your startup weather any downturns and increase the likelihood that you’ll get the right financing for your particular needs.
Remember that banks do not consider themselves to be your main source of funding. Additionally, showing lenders that you have used a variety of funding options shows them that your company is proactive.
Best Funding Sources for Startup or Small Business
Today, you have a number of options for funding your small business besides depleting your resources. From tax incentive schemes to traditional bank loans, here we explain the top ten finance options for small businesses.
Family and Friends
It’s common in the early stages of a business for parents, siblings, or friends for financial investment to support your business. This option is most suitable for businesses that need initial support to prove the concept can be successful, to the point where they can seek other funding going forward.
Indeed, once your business plan is viable, you will then be able to pitch it to banks and other initiatives for funding. Traditional bank loans and overdrafts continue to be a major source of funding for many businesses and start-ups. When used properly, they offer a quick and efficient way to finance the growth of your business. But do your homework on the various loan types, their conditions, and interest rates.
If you already have a business bank account, this option is especially suitable if you have a good relationship with your bank and you can make a convincing and well-researched business case. If you are yet to open a business bank account, it is worth checking whether you are likely to be approved for a loan before applying as being declined can affect your credit score.
With this option you raise the total amount of funding you need online from the public. People may lend you money (peer-to-peer lending) or purchase shares or ownership in your company.
Since it can take some time, it is best suited for businesses with high growth potential, lots of attention, and spare time.
Rich people known as “angel investors” will give money in exchange for a share of your company. While some investors operate alone, others collaborate. While some investors operate alone, others collaborate. Business angel investment is not suitable for businesses who want to retain 100% control of their business.
These are investors who contribute a substantial sum of money—typically more than an angel investor would—in return for company shares. They frequently want to see the company expand swiftly so they may soon see a positive return on their investment.
If you are a start-up with considerable growth potential and are willing to give up some equity, venture capital funding is a fantastic way to get funding as well as coaching.
Some finance outfits specialize in short-term loans. You can approach a payday loan direct lender (also known as ‘payday loans’) to improve working capital, boost cash flow or kick off a project.
If you only need to bridge a gap and are confident in your capacity to make timely repayments, this sort of funding can be suitable for you.
Guaranteed loan programmes are designed for small businesses that don’t meet bank lending requirements, such as a lack of collateral or a lack of a track record of successful business operations. You will still need to demonstrate the viability of your business concept.
Incubators and Accelerators
These programmes are designed to help aspirational start-ups scale and expand. In exchange for equity in the startup, they provide coaching and a modest seed investment.
Research and Development Grants
Did you know that your job might offer you free money? These kind of grants are the Government’s way of rewarding innovative companies. The gift might come in the form of cash or a reduction in your tax obligation.
SEIS and EIS
Accessing funds supported by the HMRC is tax-advantaged through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). Investors receive tax savings when they purchase shares in your company, as well as further income tax breaks if the investment is a loss.
As you can see, there are many options for determining the most effective approach to raise money, and we’re confident that you’ll quickly identify the best source of startup finance.