You’ve made the decision to set up your own business. It’s an exciting time and you’re keen to get going, but you need more startup cash than you have savings, so you’ll have to find an external source of finance to help you with your startup funding. Going to visit your bank manager is probably the first place you think of for a business loan, but it’s a good idea to look at other options available before you apply for any kind of business investment.

Family and friends

Whilst your family and friends are more likely to be enthusiastic about your new company and are the least likely to charge big interest rates on a loan, going down this route could be fraught with difficulties. Not least of which is your relationship with them. If you accept a loan from family and friends, the advice is to formalise the process, drawing up an agreement which details exactly what each party can expect, what their obligations are, and how the loan will be repaid. By treating it in the same way as you’d treat a loan from a bank or institution, you should be able to avoid the pitfalls informal loans often fall into.

Grants

Business grants are generally made for a specific purpose and do not have to be repaid, making them extremely attractive, especially to startup companies. Click here for a list of organisations that offer financial support for companies.

In Hertfordshire, Wenta offers a Startup Programme which includes practical advice and eligibility for a grant. You’ll get 12 hours of free business support and mentoring.

Once you have been trading for a year, you’ll be eligible to apply for smallbusiness.co.uk’s monthly Small Business Grant competition of £5,000.

Government loan

The Government offers a specialist unsecured loan for startups of up to £25,000 at 6% interest, repayable over five years.

Angels

Business angels are private investors who are willing to invest money and sometimes also their own expertise in startups and startup funding. Angels are generally looking to invest smaller amounts of money than the banks or venture capitalists, but expect lower return rates. There are a number of companies that help investors and startups find each other, but the trade association UK Business Angels Association specialises in early-stage investment.

Venture capitalists

If you are looking for an investor to get more involved in the running of your business, you need a venture capitalist. They will invest money and time in return for equity or shares and take a hands-on approach. If you’d rather not be seen being grilled on Dragon’s Den, visit the British Private Equity & Venture Capital Association for more information.

Crowdfunding

Most people think of crowdfunding as a way of asking people to donate to good causes, but there are also crowdfunding sites, like Crowdcube, that specialise in raising startup funding for small businesses. Crowdfunding has enabled smaller investors to put money into small businesses and startups, with the consequent benefit of allowing businesses to raise finances from a wider range of investors in return for shares.

If you would like advice about the best way of funding your new startup business, contact us to book an appointment.