One of the most difficult things to do when you’re looking at starting a business is to apply for funding. You can have the most detailed, complete business plan possible, but without funding, that business plan will remain a document and not a reality. It’s an unfortunate fact that money makes the world go round, and as you might expect, nowhere is this more true than in the world of business.
With that in mind, if you’re just getting started and you’re looking to fund your startup, you might be worried that you won’t be able to get the necessary funding or that it’ll be hard to obtain. That’s not the case, though; you just need to know where to look. We’ve put together a guide on some of the ways you can fund your small business startup, so that when the question of money does arise, you’ll be well-equipped to deal with it.
Use your own money
One of the ways that you can ensure your startup is well-funded is to provide the money yourself. Of course, this solution comes with its own advantages and disadvantages. You’ll be beholden to nobody but yourself, but it does mean dipping into your savings, and that might be a significant chunk of money you’re not willing to part with.
If you do decide to use your own money – and you’ve already looked into the possibility of a business loan with no success – then you may wish to consider funding your business using an unsecured personal loan instead. You’ll still have to make repayments, but if your business idea is risky or coming from leftfield, you’ve got a better chance of raising the appropriate amount of funding for it.
Apply for a business loan
Naturally, the most popular method of securing funding for a startup is to apply for a business loan. Different providers will have different parameters by which they judge your eligibility for a business loan, but by and large, lenders want to see a proven idea that will work well and has a good chance of growth in the future. After all, nobody wants to lend you money if you won’t be able to pay it back!
Before you apply for this type of loan, it’s worth asking yourself a number of questions. Do you really need a loan? What are you going to use it for? How are you going to make your repayments? A business loan isn’t like a personal loan; it’s not to cover short-term expenses, but to provide funding, a foundation for your business to get started. That means you’ll need a plan for how it’s going to pay dividends in the long term.
Ask your family and friends
No, really. Your family and friends could be an excellent and potentially lucrative source of funding for your business, especially if they believe in your idea. Of course, there’s an art to approaching your loved ones and asking them for money in this regard. Try to frame things in terms of what’s in it for them, and explain how their money is protected should your business fail. In this regard, treat them just like investors.
One thing you should never do is lean on the emotional blackmail switch if you’re asking for money from loved ones. Doing so is manipulative, and while it might secure you funding, the long-term damage it’ll do to your relationships is far from worth it. Only ask those around you for money if you know they’re prepared to help and if the overall risk to them is minimal.
Try angel investors
Have you ever seen the BBC show Dragons’ Den? In the show, business owners with ideas for startups try to convince investors that their idea is worth investing in. Usually, those investors agree to put funding into the business in exchange for equity. That’s pretty much how angel investment works, and you’ll usually find investors willing to supply funding in this way.
There are drawbacks to angel investment, though. If your business requires a smaller or larger investment – usually below around £5,000 and above around £125,000 – angel investors probably won’t want to know about it. You’re also putting a lot of faith into an individual, and even if they have a proven track record, they’re subject to changes in fortune much more than a company might be.
Use crowdfunding
As a business owner, you should be very, very careful with the way in which you use crowdfunding. If you misuse your backers’ money in any way – or if your idea doesn’t come to fruition because of mistakes you make – then you run the risk of incurring their ire and making it very difficult for you to ever pursue this line of funding again. Even so, this can be an excellent way for smaller businesses to shore up funding.
Some business ideas are more suitable for crowdfunding than others. Platforms like Kickstarter and Indiegogo tend to lend themselves much more to quirky, offbeat ideas than to boring corporate ones. If you’ve got an idea for a fun retail opportunity, a new kind of toy, or a brand new video game, for example, those could all be great Kickstarter projects, but a consultancy firm probably isn’t.
Keep your day job
Nobody wants to have to keep working while they start up a business, but the fact is that maintaining a 9 to 5 can be a good way to shore up some funding for your idea. After all, if you’re bringing in a steady wage, then you can set a certain amount aside each month to invest into your business, and if your job is steady, then you know that money will be available every month.
You should be careful of burnout if you do decide to go this route. Working a job and also starting a business on the side can be incredibly difficult and time-consuming, so you should only do this if you know you’re going to be able to shoulder the burden of the increased workload this method of funding will bring.
