How to raise finance for your student business
As a student, finance is generally at the forefront of your
mind: namely where it's going to come from. While starting a
business off your student loan will be challenging, it is possible
- just ask Hermione Way, who started her production company,
Newspepper, with the remains of her loan.
Although typical small business funding comes from either
friends and family or banks, there's a good chance banks will be
uninterested if you don't have collateral (for example, a house) to
secure the loan against, while investors probably won't take you
seriously until you have graduated. Until then, though, there's
actually a range of business finance solutions available - so have
a read of the following:
Types of finance
It is vital you select a source of small business financing that
doesn't just provide the capital you need but has repayment
terms to suit your growth and which you, as an individual,
are comfortable with. The type and size of investment you seek will
depend on the stage your business has reached. This guide looks at
your options: explore all those open to you:
Bootstrapping
- Perfect for student businesses, bootstrapping essentially means
starting a business without taking any investment.
This could mean you use your loan, overdraft or even a credit card
to finance it, or you could use a more creative option -
crowdfunding, for example, where you sell lots of people shares at
a relatively low price - although be aware your shareholders will
expect you to pay dividends.
- If you want to bootstrap, it's important to keep your
overheads low - that means no office space, and no full-time
employees. In this aspect, university is the ideal place to
bootstrap - not only are you surrounded by people with expertise in
dozens of different disciplines, but you can probably persuade them
to lend you their skills for relatively little payment as
well.
Personal investment
- If you are passionate about your business idea and confident it
will succeed once it's on its feet, you could put some of your own
savings into the venture. Not only is this the most natural first
step, it can also make good business sense. You are more
likely to push your business forward if your neck is on the
line.
- Once you've graduated, you are likely to interest investors
more if they see you are fully invested yourself. Just remember to
treat a personal investment just as you would that of an
outside investor: throwing in all your savings while hoping
for the best is not a sound business decision.
- There are other options besides putting your own money into the
venture, of course. You could consider calling on the 'three Fs',
for instance: family, friends and fools. To be sure, it's a good
idea to make a formal rather than a verbal
arrangement, determining whether your family member or
friend's money serves as a loan, or as an investment. See our
feature for more information on the three
Fs.
- Tread carefully - misunderstandings can damage
relationships, particularly if the friend or family member in
question is short of cash. Make sure it's money they are willing to
lose.
- That said, the three Fs are usually by far the most
affordable form of finance out there - and, providing you're
successful, arguably the most hassle-free form of investment for
those investing too.
Grants
- There is a wide variety of business grants
available: they are available from the government, from your
local authority, from your regional development agency, and from
the EU. There are also grants available from university bodies such
as the National Confederation of University Entrepreneurs (NACUE),
and your university may even give grants to entrepreneurs.
- Grants aren't available for all businesses though - the
EU's grant activities are limited to public sector funding,
for example - so before applying, make sure to check your
eligibility.
- Be prepared for a complicated application
process.
Resources
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