5 ways to fund a start-up

by Startacus Admin

Thinking about launching a startup in 2021? Here are a few of the key ways that you can fund your startup venture

The combination of Brexit and the coronavirus pandemic has hit the UK economy hard, particularly in the north of the country.

After all, business confidence in the North West remained the lowest in the whole of the UK during December, despite rising by 15 percentage points month-on-month. Even after this surge, sentiment was recorded as -13% in the region, as companies continue to battle a range of macro and socio-economic factors.

For those of you who still intend to set-up and launch a startup in 2021, however, it’s crucial that you access a viable and sustainable method of funding your venture. Here are some steps to help you achieve this objective. 

1. Start Small and Scale Organically

In most instances, startups require consistent funding before they can become self-sufficient, with the precise amount required depending on the fundamental nature of the business.

With this in mind, we’d recommend starting your venture as a side-hustle (where possible), while continuing to work on the day job and earning a steady income. You can also look to increase your earning potential at this time by engaging in activities such as forex trading, which can create a passive income stream over time.

From here, you can look to scale your venture organically and in line with its own profitability, eliminating the need to borrow heavily in the process.

2. Leverage the Concept of ‘Bootstrapping’ Your Business

On a similar note, you could look to use your existing capital or wealth to fund a new business and establish it in its chosen marketplace. 

This concept is referred to as ‘bootstrapping’, which simply means to build a business venture to scratch without having to take on high-interest loans and encumber the venture with mounting debts.

Of course, this is easier said than done, but if you have accessible cash savings and believe in your business venture it may be worth your consideration.

3. Borrow From Your Friends and Family

Another popular funding method is to borrow money from your friends and family, particularly those who may be engaged in the venture or involved in its initial launch.

However, borrowing from those closest to you is fraught with risk, particularly as funding your new business is a constant endeavour and one that can create considerable pressure over time.

It’s also estimated that 60% of new businesses fail within their first three years of trading, creating the potential for financial failure and the breakdown of relationships with loved ones.

4. Consider Crowdfunding

Crowdfunding is an increasingly popular funding method in the digital age, and one that connects entrepreneurs to like-minded peers who are committed to investing in grassroots businesses.

The biggest benefit of crowdfunding is that it can help to negate high-interest borrowing, by enabling investors to get involved at an incredibly early stage and offering non-traditional remuneration in exchange for funds.

Equity crowdfunding remains one of the most popular borrowing methods of this type, as this sees you effectively sell a predetermined level of shares in your business for a viable amount of cash.

5. Grants and Loans

Arguably, this latter option is the least preferable, as pursuing high-interest loans from financial institutions can be very expensive and also require you to commit various assets as a form of capital.

Private lenders will certainly leverage inflated interest rates as a way of minimising their own risk, whereas banks are renowned for asking borrowers to use their own home as collateral (depending on the precise amount requested).

When considering this type of option, you’ll need to ensure that you only borrow the exact amount that you need, while factoring in the total interest applied and how this impacts on your business’s long-term viability.

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Published on: 22nd December 2020