Funding up a storm

Funding up a storm

Having a great business idea is one thing, but working out the best way to finance it is another. An enterprise without the necessary funding is like a brilliant painter without any materials. Sure, figuring out which source of funding is best for your business – let alone acquiring that funding – can be a difficult process for newly independent workers to manage. But luckily enough for you, there are a number of established routes that have been time-tested for success. In what follows, we’ll be looking at how to raise funds for startups using these more established methods.

Finding the right loan or working out what kind of grant you are eligible for takes a lot of time, but you cannot deny that it’s an incredibly worthwhile process when your startup gets the recognition and financial backing it deserves. There are a great number of options out there, although perhaps the best place to start is with…

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Grants

The UK government supports new businesses as they boost the economy and create more jobs for people. A portion of taxpayer’s money is put aside for small business grants that encourage the development of new businesses. This money then gets distributed nationally and locally via a number of bodies and departments. With thousands of schemes available in the UK, it can be difficult to work out which will be best for your business. The government’s online tool allows you to search for the most appropriate grands based on the nature, size, and location of your business. If you’re thinking of applying, just remember that grants are highly sought-after and therefore often take time and effort to apply for.

Key areas of business eligible for funding are: research and development, energy and the environment, apprenticeship schemes and exports, and location can also play a big role. Indeed, there are lots of location-specific grants to help support the growth of your business. Programmes such as The National Enterprise Network are willing to offer advice and support, so you shouldn’t deny the importance of mentorship and support. There’s no need to be stubborn: startups often struggle with a lack of resources and skill-set, so a bit of sound business advice is invaluable in any new venture (especially when you’re going it alone). Good examples are The New Enterprise Allowance and the Enterprise Programme. The latter is offered by The Princes Trust, which offers small loans up to £5000, with low repayments, plus mentoring and training.

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Loans

If a grant isn’t a suitable option for your business, don’t worry – this doesn’t in any way mean that your business is unsustainable. It simply means that you have to look at funding opportunities offered by non-public bodies. There are many other options for you to explore. Let’s take a look at some of the routes you should consider taking when funding your startup enterprise.

Getting a loan from a bank to raise funds for a startup might seem like the most straightforward option. However, it’s a risky move and only wise if your business has plenty of cash flow to make the repayments. If you’re considering this route, check out Start Up Loans, which offer up to £25,000 for 6% interest and no repayment for 12 months. The great thing about this type of loan is that it comes with that all-important mentorship.

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Equity funding

Equity funding means you sell shares of your business for funding upfront (if you’ve ever seen the BBC’s Dragons Den, you probably already know how this works). The exact amount you manage to raise can differ depending on the type of business and of course its value in the eyes of your investors. Startups tend to need several rounds of funding from investors as the venture develops further and further. When thinking about how to raise funds for startups without waiting around for small loans or grants, equity funding may be the most efficient route for you. Here are some examples of the types of equity funding on offer:

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Incubators and accelerators

This is a great option for businesses looking for some guidance and it doesn’t come at a huge cost. As their names suggest, accelerators focus on scaling a business, usually in a set time frame, while incubators tend to focus on innovation. An accelerator is a kick-start whereas an incubator provides the space to grow.

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Angel investors

This type of investor tends to invest in small businesses and entrepreneurs. Funding can vary from one lump sum to regular injections of money to help with cash flow. Angel investors are often affluent individuals who are looking to invest in a business, which they in turn will gain equity ownership of. The UK government is heavily supporting this type of investment through its EIS and SEIS schemes, which offer tax incentives to small business investors.

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Venture capitalist

If you’re looking for a large sum of money (i.e. £200,000 or above) you should be considering a venture capitalist. These types of investors tend to be attracted to innovative, high-traction businesses and will have a more hands-on approach. A good place to start your search for an investor, both private and venture capitalists is through crowd funding sites, like EquityNet and AngelList. These websites offer small businesses access to connect with a network of investors looking for their next venture.

With so many tools at your disposal, the best way to approach funding is to look at all of the above options and apply your business to each. You will soon realise which will suit your business best and find yourself on the path to startup success.

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