Top Tips for Successfully Funding Your First Startup

by Startacus Admin

If you are an ideas person, you probably have a few great business ideas in the back of your mind already. The unfortunate thing about great business ideas is that they require money to be brought to life. This seems to be the plight of many people who are in the pre-entrepreneur phase (that’s the phase when things are just about to get started). As a self-starter at heart, you will already know that things can be tough for a newbie to the business world, but with the right background knowledge and support, you can get your business idea off the ground quicker than you thought possible.

An interesting document released by the UK parliament in December 2018 shows that just last year there were 5.7 million private sector businesses operating within the UK. A few years prior, this was not the norm. This was a mammoth 63% leap from the year 2000. The fact of the matter is people are coming up with great ideas and starting businesses almost daily, but where does that leave you? Why is money (or the lack thereof, actually) holding you back from getting your great idea and products out there? The thing is, money should not hold you back and if you are here reading this, you are already taking the right steps towards turning your business dreams into a reality.

If you have not saved up a hefty nest egg just yet, do not worry – all hope is not lost. You do not have to fund your own business at all. Most UK citizens do not have a massive savings. It is not about how much money you already have. It is really how new entrepreneurs go about acquiring funding that gets them to where you undoubtedly want to be.

Starting a new business poses certain threats to limited budgets, as planning, setting up and eventually operating the business will cost you. Do not let this fact scare you off - you do not have to do it alone. If you have not quite scraped the pounds together to get your great business idea off the ground yet, do not fret. Here are a few top funding tips for you to consider:

Avoid getting into debt by opting for bootstrapping your business funding

Bootstrapping your business is a form of paying for the funding yourself. You might not have a hefty amount of money saved up, but you might be able to whittle down your regular living expenses and fund your business out of your own pocket, on a limited budget. Entrepreneurs who opt for bootstrapping usually pour all their investments, savings, earnings, and even sell some of their non-essential possessions, to fund the business. In the end, this is the type of funding that gets one into the least amount of debt – if it is done carefully and without putting the budget in any compromising positions (such as defaulting on personal bill payments to fund the business expenses). If this is how you plan to fund your start up, make sure that you have a plan that you can stick to and at least be accountable for every spend you make. If you are not careful, things could get out of control. That being said, many start-up businesses in the UK are bootstrapped and do very well for themselves.

If you already have a small business in place, boost its growth with a merchant cash advance.

Merchant cash advances are quite popular with entrepreneurs as it is an alternative funding option that offers cash in a hurry. It is probably one of the reasons why very small businesses opt for merchant cash advances when they wish to expand or grow their existing concern.  Most financial companies offering this type of funding will offer anything between £ 5000 and £ 500 000. That may sound wonderful, but what does it really mean? It means that you will receive business financing in exchange for a portion of your business’ future sales. You get immediate funding now and you will pay it back over a certain period of time, in the form of sales percentages. One of the biggest draw cards for entrepreneurs seems to be that merchant cash advances come with no APR, which means there is no interest to be paid. The monthly repayments on this type of financing option are considered affordable as you pay only a small percentage of your sales over.

Take a chance & all of the financial pressure off yourself with crowd funding.

Statista confirms that there are over 80 000 crowdfunding projects currently in the UK. The website also states that these projects amount to hundreds of millions of pounds. This shows that there is value for entrepreneurs in crowdfunding and that it is happening in the UK. Crowdfunding is somewhat modern and uses a social platform. Entrepreneurs use the platform to post pictures and details of their idea or intended project and list how much money they need to get their project off the ground. Investors and even everyday people can then donate to the cause and watch as the entrepreneurs balance grows. Some crowdfunding platforms will not pay out the collected amount if the project financing term lapses and the full amount is not gathered. Other crowdfunding platforms pay out what is collected. Unfortunately, crowdfunding does not work for everyone as it is sort of a popularity contest – some projects are fully funded while others receive no funding at all. Still, many of UK’s entrepreneurs find it worth a shot and there is no risk of losing anything. For some start-up businesses, crowdfunding has been a dream-come-true. Some entrepreneurs offer their investors a piece of the pie (in the event of equity-based crowdfunding) after the business takes off, or send them some sort of reward (in the event of rewards-based crowdfunding) as a “thank you” for their sponsorship.

Get funding & a chance to have a greater reach by appealing to investors (Venture Capital).

If you do not want to approach the local bank or take the risk of disappointment through crowdfunding, venture capital is a viable option for many entrepreneurs. Venture capital is a type of equity based funding that is quite prominent in the United Kingdom. This type of funding involves investors providing the money needed for your business to start up. Usually quite large sums can be provided by investors quite quickly. It really depends on how much your investors believe in and are impressed by your business ideas and intended products or services. The money is provided immediately in exchange for shares in the business. And this is why some entrepreneurs avoid venture capital. This type of funding is not for everyone, especially those who do not want outside parties having a say in the running of their business. On the flipside though, entrepreneurs can benefit from the support they can get from big investors who have the resources and experience to help them through difficult business situations and hurdles. Also, most venture capitalists are quite well-connected in their various fields of expertise, which provides entrepreneurs with the opportunity to expand their reach and experience steady growth.

Consider SME loans as an alternative funding option to High Street Banks.

Some entrepreneurs want to avoid High Street bank loans because of the requirement for collateral and the lengthy waiting period often attached. For these entrepreneurs, SME loans might prove viable. SME (small-medium enterprise) loans are a type of debt funding. Most small business loan companies in the UK offer decent loan offers with reasonable interest rates and require no collateral. It is not uncommon for a new business start-up to acquire a loan of up to £ 500 000. It is also not uncommon for loans to be paid out within a matter of days. Small business loans of this nature allow for greater flexibility and entrepreneurs remain the sole owners of their new business. If you have a credit record that shows you currently have a good relationship with debt, acquiring an SME loan is usually a simple process.

Comparing the various small business loans available is an important part of the process, to ensure that you do not inadvertently get yourself locked into a long term, expensive loan. There are great comparison websites out there, such as Money Supermarket, which can help you with finding the right small business loan for you.

Last Word

With these funding tips above, you should have all the information you need to decide which financing option is best for you and your great business idea.

Content by www.smeloans.co.uk - a company dedicated to helping small to medium businesses grow.

Subscribe to our newsletter

If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.

• #funding
• #finance

Published on: 13th June 2019