Top 7 Secrets for Financing a Startup
By Robert Munro
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If you have a fantastic idea for a business then you may think the only way to bring it to life is with a bank loan. But with an ever-increasing range of funding methods at your disposal, aspiring entrepreneurs should look beyond the bank loan and explore some of the innovative and alternative funding types that are available. The sad fact is that brand new businesses are often turned down for a bank loan, but with a competitive range of finance options available, this shouldn’t hold you back. So what other options are there for prospective small business owners? Here are seven lesser known startup finance alternatives...
- Venture capital
If you have a great idea then it’s unlikely you’ll be the only one who sees the potential. Venture capitalists are investors who specialise in providing the capital startups need to grow. They tend to focus on businesses with high-growth and high-risk potential. Venture capitalists also target specific sectors and can provide invaluable assistance and advice to help your startup flourish. They can also put you in touch with key industry contacts. However, venture capitalists tend to make short-term investments and typically look to recover their investment within a three- to five-year time frame. That means, if you’re looking to run your business over the longer term, venture capital might not be the right financing type for you.
Crowdfunding is one of the more recent innovations in the business finance space. Most of you will have heard of sites such as Gofundme and Kickstarter, which entrepreneurs can use to pitch their business ideas to the masses online. Instead of looking for a large single investment, crowdfunding allows startups to pool smaller investments from those who want to see their idea come to life. In return, investors receive free products, discounts, exclusive others and other rewards which act as an incentive to make an investment. As well as a source of finance, crowdfunding also gives entrepreneurs the chance to create a buzz around their business before its launch.
- Government grants & startup loans
The UK Government provides loans, mentoring and support for startup businesses which are unable to secure investment from high street banks. The average loan size is currently around £6,000, although the capital you can access will be determined by your requirements and your business plan. There are also a number of sector-specific small business grants available, with each grant provider having its own application process and criteria for applying.
Startups looking to improve their cash flow position or scale up quickly can use invoice finance to release the cash tied up in their invoices immediately rather than having to wait for 30, 60 or even 90 days for customer payments to be made. This allows the business to operate effectively and keep growing while it waits for customers to settle their bills. By closing the pay gap in this way, startups can hire new workers, pay their own supplies and accept new projects more quickly. A recent innovation in this space is sites like Business Expert (https://www.businessexpert.co.uk/) which provide a free comparison service so startups can find the best invoice finance deal for their specific needs.
- Peer-to-peer lending
Peer-to-peer lending is a relatively new area of finance in which those needing to borrow money are matched up with private investors willing to lend it. In the case of a startup business, a prospective lender could be a successful entrepreneur looking to fund similar ideas. One of the main advantages of peer-to-peer lending is that the money does not come from building societies or banks, which cam make it easier for startups that don’t meet typical lending criteria to access.
- Personal credit lines
Although this may not a particularly ‘secret’ form of business financing, you’d be amazed by how many prospective entrepreneurs do not think about using personal lines of credit to kick-start their business. You qualify for personal credit cards and loans based on your personal credit history and not that of your business. That can make this type of funding much easier to access. There’s also the advantage that the business owner retains total ownership and control of their business.
- Startup incubators and accelerators
This type of organisation has grown in popularity in recent years and is often associated with major universities, community development organisations or even large companies. Most incubators provide resources such as office space or consulting facilities, but many also provide funding for startup businesses as well.
By Mike Smith. Director, Company Debt (https://www.companydebt.com/)
Article Submitted On: July 05, 2017