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 the investment you seek will depend on the stage your business has reached. This guide looks at your options.

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. For example, crowd funding, 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, a university is an 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 devoted to the business yourself.
  • Just remember to treat a personal investment 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. 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. 
  • 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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