You’ve developed your business plan, honed in on your products or service offering and you’re now ready to hit the big wide world with your idea. Only, startups, or at least the vast majority, require some form of cash investment to get the ball rolling or grease the gears along the way.
The challenge of funding is one that entrepreneurs will inevitably have to face if their startup is to succeed - and with a whole host of different avenues to explore, entrepreneurs are faced with a difficult decision when deciding which route to take. From crowdfunding to business loans, we’ve done the research for you, so you can make the right choice when raising funds for your startup.
1. Join an accelerator
A popular choice for fundraising in recent times, business accelerators focus on fast growth in a short space of time - generally less than a year. Investment sums tend to hover around the £20,000 to £30,000 mark and usually require an equity stake of between 5-10%. The benefit of an accelerator doesn’t stop with cash, as many accelerators offer the chance to receive expert advice from their network of academics and business leaders. This advice holds great value for those who work alone, offering support for legal and financial matters, among other crucial considerations.
Further to this, accelerators can provide shared office space, meeting facilities, 1-2-1 training and tech support - which can make this form of funding particularly appealing to those seeking their first round of financial support. The market landscape for accelerators is extremely competitive, so it’s worth ‘shopping around’ to see if you can find the right fit for your business.
A modern twist on traditional funding models, crowdfunding has revolutionised fundraising, providing the opportunity for startups to seek financial support from the wider community. The UK crowdfunding marketplace has become increasingly competitive in recent years, with market leaders like Kickstarter and Crowdfunder leading the way with their service offerings. Across the modern crowdfunding landscape, you can offer anything from business equity to a t-shirt in return for cash investment - giving startups an appealing set of options to suit most business models.
Keep in mind that crowdfunding is not without risks, with data suggesting that under a third of crowdfunding campaigns fail to reach their targets - so it’s wise to avoid relying solely on its success to raise much-needed cash.
3. Obtain a loan
Of all the fundraising options available, borrowing money in the form of a business or personal loan is often the simplest and most worthwhile. While it can be exceptionally difficult to get a bank to approve a startup loan - particularly in the currently recovering economic climate - alternatives like online brokers offer a chance for startups to secure extra cash without the drawn out process many banks and high-street lenders adhere to.
Smaller personal loans of up to £25,000 can be used as a quick way to raise cash that can later be invested into a business - an amount that can make all the difference during the early stages of entrepreneurship.
4. Turn to friends and family
An option which is often overlooked, pitching your idea to a network of friends and family can be a useful way to secure startup funds. As an early-stage startup, this initial investment can get the wheels in motion and provide the boost needed to empower your business.
This can appeal to investors at later stages in business funding, as it shows trust in your business from those closest to you. Caution should be taken though, as the extremely personal nature of borrowing cash from friends and family ties you to an intertwined commitment to repay the money - which can put a strain on your relationships if things don’t go the way you’d planned.
5. Explore small business grants
Small business grants are a fantastic way to find funding for your business, with UK and EU-led schemes providing cash across a number of different sectors and opportunities. The main advantage of grants? They’re free. That means you can spend the cash without having to pay back the investment amount, its interest or putting collateral on the line. The process to apply is usually two-part: first you will have to submit an initial EOI (Expression of Interest), and then follow this up by presenting in-depth business plans, forecasts and market research to persuade the schemes your proposal is viable.
Regional growth hubs offer advice for grant applications and can help you prepare the necessary documentation for free or via funded channels, so it’s worth seeing what support is already out there before exploring this option. Find out more at gov.uk >
There are many ways to secure funding for your startup, with each business being inherently different when it comes to what they’re looking for. Each funding avenue has its own distinct advantages and disadvantages, so SMEs should conduct due diligence before seeking investment - to help them find the right fit for their business.
Amanda Gillam is a Content Writer for Solution Loans – a technology-led finance broker bringing a broad range of personal finance products to people across the UK.