How to raise £100,000 for your business

Raising £100,000 might seem like a mountain to climb when you are just starting in the early days of your business, but it need not be that hard.

Self finance and banks are not the only options available to you. There are a few other ways to get going.

To find the right funding for you, ask yourself the following questions:

• What is your business? If it is an internet or technology-based company you might need more money and an investor who is prepared to take a higher risk.
• How long do you have to raise the money? What risks are you prepared to take in order to get what you need?

For example, are you prepared to use your own money, invest relatives and friends’ capital, or seek alternative funding from a larger pool of investors such as business angels or even venture capitalists?

Whatever you do, don’t panic. Let Startups guide you through the variety of choices open to you in your quest for growth.

In this article, we’ll cover:

• Your own money
• The four Fs
• Bank loan/overdraft
• Grants
• Enterprise Finance Guarantee (EFG)
• Incubator
• Business angels

Simply click the links above to skip straight to the section that you want to learn about the most. Or, read the whole guide for a more thorough understanding of the different ways of raising finance initially.

Your own money

This is one of the most common ways of funding a business, and if you have the money readily available, it can be beneficial. There is no waiting around and virtually no red tape involved.

However, if something goes wrong and you have nothing to fall back on, you could face a severe knock-on effect. Your business’ fate is in your own hands.

The four Fs

More commonly known as founder, family, friends and fools.

If your own money is not quite enough you may choose to seek help and next stage funding from friends and family. Those involved may ask for something in exchange, such as a stake in the company, but this is up to your own discretion. Written guarantees and/or legal documentation may also have to be drawn up.

Whatever you do, make sure that you plan for every eventually. Unfortunately, most people don’t enter a business partnership thinking about what can go wrong – but, just like a marriage, divorce can happen to anyone and at any time.

Bank loan/overdraft

When people think about raising money, their first port of call is generally the bank. In fact, using banks to borrow a sum of money to see small businesses to the next stage of growth or to get the company up and running is likely to be one of the main types of funding you think of.

However, banks will always look for security and if you don’t have it you will have to go elsewhere. For a smaller amount of money this will often take the shape of a secured loan backed up by the borrowers’ own home. Acceptance will almost always depend on the type of business and the amount of security the bank can receive in return for funding.

If you need more than £100,000, don’t worry – some banks can help you. But usually only if they have a venture capital arm.

For example, HSBC Corporate Ventures UK offers Strategic Innovation Investments (SII), which invests into early stage companies that are strategically relevant to HSBC.

Currently, it focuses investment on the following themes: data and artificial intelligence, open banking and networks, security, crime prevention and identity, as well as operational efficiency.

Other options include HSBC Private Equity, as well as HSBC’s small business lending fund of £12bn, which is available for businesses with turnover up to £350m.

Grants

If you don’t fancy facing your bank manager and are looking to secure a smaller amount of money, a grant (or a combination of grants) could be more suited to your business.

This is one of the cheapest forms of finance, but beware of the sometimes non-financial conditions that may be attached to the grant.

These could include the number and type of people employed, and occasional restrictions on items on which the money can be spent.

Grants range from local initiatives to government funding, as well as private funds across the country. And if you thought grants were just about a few hundred pounds, then think again.

Some may be offered by government organisations. Thousands of other ‘hard cash’ schemes exist and are provided by banks, the European Union (EU), and other large, as well as smaller, organisations. If in doubt, consult your Local Enterprise Partnership.

Read more in our guide on what small business grants are available. Also, for more specific information, check out our dedicated pages on business grants in Wales and Scotland, as well as for women and the unemployed.

Enterprise Finance Guarantee (EFG)

Backed by the British Business Bank, this provides the lender with a government-backed guarantee, a loan of up to 75% of your desired amount, on figures between £1,000 and £1.2m, from banks and other financial institutions.

The scheme is generally designed for small firms that have viable business proposals but who have failed to get a conventional loan because they don’t have enough security.

To be eligible you must be a UK-based company with an annual turnover of no more than £41m and operate in a sector eligible for an EFG (which is most of them). There are some other conditions too – you can read more about them on the EFG eligibility criteria page.

Incubator

Unfortunately, money alone cannot nurture a business. However, help is at hand in the form of business incubators or, as they are sometimes coined, innovation centres or business accelerators.

These are companies set up to invest and dedicate their time, money and advice into a venture that is set to hatch into a company of the future. Incubators vary in their range of support packages and demands.

Incubators normally take your idea at an early stage and support it until it reaches the next stage of growth. Incubation packages will vary greatly. These include funding for early stage companies in areas such as accommodation, hardware, software, management, marketing, telecoms, legal and accounting services and recruitment.

It is important to shop around as many incubators as possible to see what they offer. They range from university business support units, which generally help academics take their idea to the next stage, to pure venture capital led incubators, and are usually backed by people with varying amounts of experience.

As well as funding, they may also give you the chance to use their technology, staff and support services, as well as corporate identity.

Business angels

If none of the other options suit your needs, perhaps you could turn to one or more business angels.

These are private investors (often former business owners or senior managers) who have a certain amount of capital in their bank accounts and who are interested in directly investing in private companies.

In return for their investment (which can range from approximately £10,000 to £500,000, and can either involve a single angel or a network of angels), the parties involved will generally ask for an equity stake and perhaps take a seat on the company’s board.

There are also tax incentives available through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

And if one angel isn’t enough, you can always try to organise a group of investors. It takes more time but it can be done.

Getting together a group of business angels in a network can often be used to acquire a larger pool of funding of up to £2m. An example of this is the UK Business Angels Association,which is available to offer guidance and advice.

The addition of an angel to the team, or someone who can impart good business advice, may be the deciding factor in the success or failure of your venture.

What are the next steps?

At this point, you’ve learned more about the available options to raise the first £100,000 for your business, including using your own money, as well as that of friends or family, or applying for a bank loan. We’ve also covered other options, such as Enterprise Finance Guarantees (EFG), incubators, and more.

Next, visit our pages on 10 ways to fund your business and 6 sources of business finance, for more information. Good luck!