Where Can You Get Funding For a Startup?

For startups, securing adequate funding often determines the line between success and failure. But access to the right finance isn’t always easy to get.

From bootstrapping and bank loans to angel investors and crowdfunding, I’ll explore what’s out there and where to get it.

15 Places to Get Startup Funding

Self-Funding: Bootstrapping Your Venture

For many entrepreneurs, their journey starts with self-funding or bootstrapping. This involves using personal savings, revenue from early sales, or even leveraging personal assets to finance the business. It’s a route that showcases dedication and belief in the venture, as the founder is directly bearing the financial risk.

While it may limit initial growth potential due to financial constraints, bootstrapping allows entrepreneurs to retain full control of their business without external obligations.

Inner Circle Investments: Friends and Family

Sometimes, the initial capital needed to kickstart a business idea comes from those closest to the entrepreneur. Friends and family investments are informal funding arrangements where personal networks contribute funds to support a startup.

While this approach provides a more flexible and trusting source of capital, it’s vital to communicate terms clearly to avoid future misunderstandings or strained relationships. Drafting a basic agreement that outlines the investment terms, repayment conditions, or any equity given can be a prudent approach.

Angel Investors for Startups

You can also look for loans to help you get the capital you need to get your company off the ground. Additionally, it’s possible to find angel investors, or you can turn to this century’s zeitgeist – crowdfunding. Grants and loans are pretty straightforward.

You’ll complete an application (some are quite a bit longer than others), you may have an interview, then the process is over. You either get the funding, or you don’t.

Angel investors work a bit differently. These folks are usually investors who are interested in helping entrepreneurs get off the ground. They’re willing to throw money into your company in return for some cash. Think Dragons’ Den in real life. The catch here is that the business usually needs to be making at least some money to attract the right angel investors.

Crowdfunding for Startups

Crowdfunding is more than just a buzzword. It’s a mainstream fundraising model these days, and with sites like Kickstarter attracting new contributors almost every day, it’s becoming one of the single most popular ways for new entrepreneurs to achieve the funding necessary to go forward.

Venture Capital Startup Funding

If you’re idea is strong enough and you can demonstrate it’s likely to make an investor money, you may eligible to seek startup funding for venture capital firms. These differ from angels in that they are companies rather than individuals.

As with angel investing, you will risk giving up a lot of equity if you go down this path.

Start-Up Business Loans: Tailored for New Ventures

Start-up business loans are specially designed financial products that cater to new businesses lacking an extensive credit history or significant assets. These loans are usually structured with the challenges of new businesses in mind.

Lenders often require a well-articulated business plan, financial projections, and potentially personal credit checks. In the UK, several schemes, including the government-backed Start Up Loan Scheme, are available to assist nascent businesses, ensuring that bright ideas get the financial support they need to flourish.

Government Support: The UK’s Start Up Loan Scheme

In the UK, the government recognises the importance of fostering a vibrant entrepreneurial ecosystem. The Start Up Loan Scheme is a flagship initiative offering financial assistance to entrepreneurs wanting to set up or expand their business.

Backed by the British Business Bank, this scheme provides unsecured loans for business purposes, making it easier for startups without significant collateral. With fixed interest rates and flexible repayment periods, it’s an attractive option for those seeking a government-endorsed boost to their startup capital.

Traditional Business Loans

Unlike start-up specific loans, traditional business loans cater to a broader range of businesses, including established ones.

These loans can be more challenging to secure for startups due to their stringent credit requirements and the need for a solid trading history.

However, they often offer more substantial sums and potentially better interest rates. Startups considering this avenue might be required to offer personal guarantees or put forward business assets as collateral to reassure lenders.

Personal Loans for Business Needs

Personal loans can sometimes serve as a workaround for startups that find it challenging to secure business-centric loans. These are based on the individual’s credit score and financial history rather than the business’s credentials.

While using personal loans for business purposes can provide the needed funds, entrepreneurs should ensure they’re comfortable with blurring their personal and business financial lines.

Additionally, it’s crucial to clarify with lenders if the loan can be used for business purposes to avoid any complications.

Business Credit Cards: Flexible Funding

Business credit cards can be a lifeline for startups needing to manage cash flow or cover immediate expenses. Similar to personal credit cards, they provide a revolving line of credit with a set limit, allowing businesses to make purchases and pay off the balance either in full or over time.

They can be especially handy for regular, recurring expenses or even unexpected costs. Plus, many offer rewards or cashback programs, which can provide additional value for the business. Startups without a credit history might be assessed based on the personal credit score of the business owner or may require a personal guarantee.

Business Line of Credit

Different from a traditional loan, a business line of credit offers startups flexibility in borrowing. Think of it as having a pool of funds available, where money can be drawn up to a certain limit whenever needed. Interest is typically charged only on the amount drawn, making it a cost-effective solution for startups unsure of the exact amount they’ll need.

This facility is excellent for managing cash flow fluctuations, purchasing inventory, or dealing with unexpected expenses. However, startups should be aware that there’s usually a set date by which the funds need to be repaid in full.

Invoice Financing

For startups that operate on an invoicing system, cash flow can be a challenge, especially if clients delay payments. Invoice financing offers a solution. It allows businesses to borrow against outstanding invoices, providing immediate cash.

Lenders will advance a percentage of the invoice amount, and once the client pays, the loan gets settled with the lender taking a fee. This method ensures steady cash flow and reduces the wait time for payment.

Asset Financing and Refinancing

Asset financing refers to a method where a lender provides funds for the purchase of assets for the business, such as equipment, machinery, or vehicles.

Instead of paying the full amount upfront, startups can lease the asset or buy it over time. On the other hand, asset refinancing involves selling a company’s asset to a lender and then leasing it back. It’s a way to unlock the value of assets already owned, providing immediate liquidity to the business.

Merchant Cash Advances

This funding option is tailored for businesses that have a steady volume of card sales. A merchant cash advance isn’t a loan but an advance based on the projected card sales of a business.

Startups receive a lump sum in exchange for a percentage of their future card sales until the advance is paid off. It’s a flexible option, as repayments adjust based on sales volume, but it can be more expensive than traditional loans.

Grants for Startups

One of the most attractive funding options, grants don’t need to be repaid. Various organisations and governmental bodies in the UK offer grants to support startups, innovation, and research. The challenge lies in the competitive nature of grant applications.

Startups should thoroughly research available grants, ensure they meet eligibility criteria, and craft compelling applications to increase their chances of securing free funding.

How to Get Your Start Funding Application Accepted?

Now that you know where to look, it might help to know a bit about how to look. There is one single thing that will set you apart from every other startup looking to sponge cash to get moving.

Ready? It’s a good business plan. You could have almost every other aspect of your company in order, but without that business plan in place, few people are going to want to touch your company. Wondering why? It’s simple. If you have a business plan in place from the outset, you’re putting everything in place at once.

You’re adding in your value proposition, marketing assumptions, operations plan, staffing plan, and a closer look at your financing. It’s a good way to let investors know just how crazy you are to undertake a venture like yours. Take a look at a quick example. Imagine that you’ve put together a business plan that is projecting 20,000 customers by year two, but your staffing plan only has two sales associates by that point in time.

Seriously?

Two associates, to deal with 20,000 customers? That’s a business not very many people are going to be willing to sink cash into.

The beauty of a business plan, though, is that it is your sales tool, but it’s also your review tool. You can use it to take a closer look at your hopes, dreams, aspirations, and all of that stuff that creates motivational posters for offices everywhere, but it’s also a good way to look at what’s going to work for your business. It’s a great way to review every aspect at once and make certain you’re ready to undertake this venture.

The Secret Ingredient to Getting the Funding You Need for Your Startup

So, you need a business plan. What’s the secret ingredient? If anything, it’s enlisting the help of a professional who can guide you through the process or even help you author the plan. Even if you hire a copywriter to handle the whole thing for you, he or she is still going to need your input to get those numbers right.

The bonus, though, is that working with a professional means far less stress on your end. Beyond working with a professional, there aren’t any secret ingredients to a solid business plan.

There are many books on the shelves of shops across the UK that will suggest there are, but often it’s just good research and an understanding of how you might move forward.

Money won’t simply fall into your lap. It’s not going to show up in the post. It’s going to come from a source ready to look over that business plan, so what are you waiting for?

Get writing!