Top 10 ways to fund your business

The issue of funding is a hot topic among entrepreneurs and business owners at the best of times, but throw a recession and a credit crunch into the mix and the discussion intensifies to searing temperatures. When you come up with a business idea, the next step is usually to work out how you’re going to fund it. There are plenty of options out there for getting your business off the ground, it’s just a question of picking the right one for your venture.

Here’s our list of the top ten ways of funding your business idea:

Savings

Got some money in the bank? With interest rates at an all time low, it’s not doing much for you sitting in an account. Or perhaps you’ve been made redundant, and have a large chunk of cash burning a hole in your pocket. The great thing about using your own money to start up is you don’t have to go cap in hand to anyone else. Plus, there’s the added bonus of not starting out in debt, or giving away equity at an early stage. There are other advantages too – if you want to pump more cash into the business later on, investors often like to see you’re committed to a venture enough to put your own financial weight behind it.

Friends and family

If you’re serious about starting a business you’ll need all the encouragement and moral support you can get from your nearest and dearest. But sometimes they’re also in a position to help you out with cash. You can negotiate more favourable lending terms with your loved ones, and often they’ll be eager to help for a slice of the pie rather than a straight loan or donation. Be careful though. A financial transaction gone sour can result in the breakdown of the relationship and things can get sticky when borrowing money from those closest to you. It’s important to agree the terms of the loan or investment up front, making sure everyone knows where they stand whether the business is a roaring success or a bit of a dud.

Angels

You’ve seen Dragons’ Den, but business angels aren’t all as scary as the fire-breathing five on BBC2. A business angel can be an acquaintance, a former employer or someone you’ve found through a funding network. There’s no hard rule other than that this kind of funding involves an individual or group that offer cash in exchange for a share of the business. Sometimes they take an active role in the venture and sometimes they act as silent partners. It really does depend on the individual circumstances and it’s up to you to decide the kind of angel investor you want involved.

Banks/loans

If anecdotal evidence is to be believed, small business loans are hard to come by these days. That’s not to say they’re non-existent however. There is still money out there and the banks haven’t closed shop completely. You’ll need a solid business plan and a clear idea of when and how your revenue will come in before a bank will even sit down with you though. If you haven’t got the assets behind you to guarantee the loan yourself, make sure you ask your bank about the Enterprise Finance Guarantee (EFG) scheme, which the government introduced to help small business secure finance.

Grants

There are literally thousands of different types of business grants available. The hard part is finding them, and getting through the application process, which can be long and arduous. However, if you or your business qualifies, they can provide the financial impetus your idea needs to either get off the ground or grow into something bigger and better.

Asset based finance

Essentially this involves borrowing against assets you already own. It could be equipment and inventory or something less tangible like an invoice. If you’ve billed a customer but haven’t received payment yet, you can borrow cash against that invoice or even sell the debt on. It can work wonders for your cashflow if you’re growing fast but your clients have lengthy payment terms. You’ll need to pick the company you work with carefully though to make sure they uphold the reputation of your business if they’re chasing clients for unpaid invoices.

Private equity and venture capital

You’ll be hard pressed to find a venture capital or private equity company willing to invest if you’re pre-revenue or very early stage these days. They’re also not really interested in small amounts of cash – you’ve got to be looking for several million before they start to take notice. However, if you’ve got big plans and a viable exit strategy it doesn’t hurt to get out there and meet a few VCs if you get the chance.

Corporate venturing

If you’ve got a great idea but want a helping hand getting it off the ground in terms of finances and other resources then you might want to consider being incubated by a larger company. It’s not for everyone, especially if you’re not willing to give up a degree of direction and control, but if you find the right partner you could find start-up funds, office space, marketing and even human resources provided for you.

Credit cards

It’s not the ideal way to start your business but many entrepreneurs have successfully funded the early stages of their venture with plastic. You’ll need to be strict though. Low rates or even completely interest free periods are common but you need to be able to pay it back quickly because the monthly charges won’t be cheap once they start. Approach this funding method with extreme caution but there’s no need to rule it out completely if you need a relatively low sum of money for a short period.

No money – organic growth

Starting a consultancy from home? Got an idea for a website you can build and code yourself? There have been plenty of successful ventures over the years that started with no, or negligible amounts of cash. This kind of funding method works well if you’re offering a product or service where you receive payment before you have to buy any stock or actually deliver the goods. The revenue received can then be used to plough back into growing the business. It’s certainly the most risk averse way to start a business, and while it may not be the quickest route to a multimillion pound turnover, there’s nothing stopping you getting there eventually.