Make and collect payments using Bacs, Faster Payments, Direct Debit and Open Banking. Manage cash flow, invoices, remittances and protect your business from fraud.
Ding! That’s the sound of an entrepreneur having a lightbulb moment with a great idea for a business.
In a rush to develop a plan, launch to market and accelerate growth, make sure you give sufficient thought to how you are going to fund your brilliant business idea.
Depending on the type of business you are starting, the level of funding that you need to get off the ground and generating cash flow can start from as little a few hundred pounds up to hundreds of thousands of pounds. Many costs may not seem apparent at the outset but can quickly eat into your budget.
Take an osteopath that wants to kit out new premises and invest in state-of-the-art digital x-ray equipment. This might cost £100,000. In contrast, a sole trader web design business run from a spare room could launch with well under £1,000.
The obvious place to look for funding is close to home and see whether you can fund your business directly. Some entrepreneurs will be able to dip into their savings. Or the bank of mum and dad may be able to help.
These are the quickest and easiest way to get funding, often called ‘bootstrapping’ a business. But, and this is a big but, your own money or that of your relatives will be at risk. Many people will steer clear of potentially putting hard-earned savings on the line with a new business venture.
Also, this type of funding typically might not get you very far as they tend to be relatively small investments. If you need significant funds for launching a business, taking a prototype to market or penetrating new markets, this type of funding might be too limited.
To secure funding, there are a number of different options. Start with investigating small business grants. These are provided by the UK and European government and individual private institutions. They can be used to support business growth and investment in a local area or to help fund expansion into overseas markets.
Grants range in size from £500 up to £500k or more in the case of certain European development grants. They are one of the best forms of investment as they do not require you to pay them back.
After all, who can say no to free cash?
They may also come with the opportunity to tap into other forms of business support, such as expertise or office space – which makes them doubly attractive.
There are a large number of grant options, and the Entrepreneur Handbook has a useful list that you should work through to establish which ones are suitable for your particular circumstances. Always remember that getting a grant will usually require a detailed application process and the outcome is not guaranteed.
Start-up loans differ from grants in several key aspects. They can be used to start a new business or grow an existing business that has been trading for less than two years. The funds borrowed will need to be repaid in full over an agreed term of between one and five years.
They are effectively a personal loan rather than a loan to your business. Loans are usually repayable on a monthly basis and the average amount funded is between £5,000 and £10,000.
It may seem unusual for loans to be made to the individual. But the idea is that there will be greater personal accountability and this will result in a more motivated business owner and ultimately a more successful outcome.
Start-up loans are an unsecured loan. This means you can get one without the use of a guarantor or collateral. This has many advantages over a secured loan that requires someone to act as a guarantor or an asset to be offered as collateral to secure the loan.
Lenders need a degree of surety that you will pay back the loan. Many types of funding will require you to put up collateral in the form of a personal guarantee. This is where you or a third party agrees to offer a personal undertaking that a loan will be paid back.
If you can’t pay back a secured loan, the company that made the loan can take possession of the collateral or call on whoever provided the personal guarantee to pay back the outstanding balance. You can see why asking family members to give a personal guarantee could be a bad idea.
While you don’t have to be a homeowner to get a loan for your business, it is fairly advantageous. The value of your property can be used as collateral against the loan. If you are a homeowner, then it means you are tied to a single location which lowers your risk profile. And more importantly, you have already passed the financial, credit and personal scrutiny that comes with applying for a mortgage!
The lender wants to be able to see clearly that you will be able to repay your loan. They need to know enough about you that will enable them to make a ‘yes’ decision. This is why they will often want to know about your home as part of building a detailed picture of your personal circumstances.
It is important to remember that lenders don’t want to take your home away from you. They will want you to succeed so that they will see their loan repaid efficiently, and for them, cost-effectively.
If you are taking on board an investor then you need to do your homework. Do as much diligence and research as possible. After all, you and your business plan will be scrutinised in detail for evidence of profitability, growth potential and ultimately your ability to generate a Return on Investment (ROI).
Some of the most successful pitches on BBC’s Dragon’s Den happen when the entrepreneur knows exactly which Dragon they want. It could be you are attracted by access to market channels or specific sector expertise.
A key decision you need to make is to whether you want an investor that simply provides funds or one that brings specific expertise and can actively add value to your business. ‘Angel investors’ that invest in multiple businesses might be able to introduce you into their network. This can then help to accelerate business growth.
One of the best ways to attract an investor is to work with a third party to draw up a prospectus for your business including financial models and projections. You can use this to demonstrate to investors how they will make their money back and return a profit.
Some investors will want an equity stake in your business. This is a significant decision as you are giving up a share in your business which can dilute control. It also means you are sacrificing revenue when it comes to selling the business.
In today’s internet age, there are a few funding alternatives that don’t rely on pitching to individual investors. Websites such as Kickstarter allow you to crowdsource funding for your business to many people.
‘Crowdfunding’ is an innovative financing option that uses technology to match companies and individuals looking for capital investment with investors looking for growth and ROI. It is the UK’s most frequently searched term on business funding – far more than their traditional counterparts such as bank loans and start up loans.
What do prospective investors look for? They want to see a well-run business or a well thought out business plan. Make sure your cash flow and profitability projections are clear and realistic. This can go a long way to convincing your investor that you have a viable business idea.
Demonstrating you have a strong grasp on costs, risks, customer needs and pricing strategies are all essential, along with knowing how you will distribute your goods.For example, you might look to sell and distribute through Amazon - it’s important to know the channels relevant for your products or services.
Bear in mind that all investors want a positive return with as little risk as possible. If the investor has a proven track record in helping similar businesses, then they will potentially be a good match. When holding talks, interview the prospective investor as much as they interview you.
Investment into your business will play a key role in how well you will be able to launch or grow. However, many businesses believe that they are unable to access bank finance and are therefore restricted from getting funding. Hopefully this article has shown there are alternatives to bank financing.
There are now many traditional and innovative options open to business owners that want to raise investment. You need to look at the different options to see which is suited to your circumstances and crucially, your attitude to risk and reward.
Be confident, be brave and above all, seize the moment so that once you have your funding in place, you can hit the ground running and make the most of the injection of funds into your business.
Read this guide on business growth and managing your workload to discover how you can find your work life balance again.
Until you receive money from a sale then you are at risk of late or non-payment, making it tough for you to manage cash flow. Read our guide to learn more about getting paid and finding the best payment method for you and your customers.
The number of people starting up a new business is increasing year on year. More and more people are turning to the flexibility, freedom and potential rewards that come with being your own boss. But the failure rate for new businesses is high. Many don’t make it to the second year. So how can you make sure that you are one of the successful ones?
Our payment experts are here to help.+44 118 925 8250
Chat with one of our payment experts. We'll recommend the right solution for you.
Tell us a bit about you and your business and we’ll get back to you with all the information you need.