How to Finance a Start-Up Business

How to Finance a Start-Up Business

Most aspiring entrepreneurs are concerned about the lack of capital that could help them back up their viable idea to start a business. However, once you know where to look, securing funding won’t be as daunting as you thought it would be! There are lots of different ways to finance your start-up and although the multitude of schemes is indeed confusing, they all seem to fall into 6-7 main areas, which will be discussed below.

Before you get in touch with a lender, ask yourself these questions:

  • Can you prove that your service/product covers a gap in the market?
  • Have you carried out market and consumer research?
  • Can you pay for your startup with a part-time job until it gets off the ground?
  • Can you cut back costs?
  • Have you worked out exactly how much you need (also considering the worst-case scenario) and when?
  • Do you need long-term or short-term funding?

That said, the simplest option to finance your start-up in by:


This means using your own saving, assets, and investments. That way, you retain control of your business and get to keep all the profits. Also, potential lenders or investors will definitely appreciate your commitment. Plus, you don’t to worry about loan charges or interest repayments, provided that you haven’t remortgaged your home, which can be a risk if you are unable to keep up repayments.

On the other hand, you’ll need to think of the possibility your business hits hard times. In this case, you might not have a backup help.

Family and Friends

What you need to decide on is whether you will give part of your business in return for getting financed or if it’s going to be a simple loan. This is probably the most cost-effective way to get finance. Whatever you decide, make sure you draw up a formal agreement, though, to avoid any mishaps in the future. Compared to a bank loan, getting a loan from your family and/or friends usually comes with better terms and conditions. However, you should keep in mind that you will be putting your relationship with these people to the text.

Bank Loan

For a set period of time, you have to pay back a specific amount every month; just like any other loan. The good news is that you don’t need to give up equity and that you can forward-plan your finances.
But note that banks are usually reluctant to loan money to new entrepreneurs with zero business rack record, especially the last couple of years. Also, you may have to face hefty interest rates and chances are you’ll have to pay some money yourself.

Investors and Business Angels

Private entrepreneurs called business angels usually invest up to £750,000 and are a good way to get finance, provided you are ready to give up a share of your business (and some of the control). What’s also important is that you gain invaluable expertise and advice from these people. Also, they tend to make decisions quickly and you don’t have to pay any interest. Plus, business angels can help you broaden your horizons.

Business angles are NOT for you if:

  • You need more than £750,000 or less than £10,000.
  • You don’t fancy the idea of giving up partial control of your business.
  • Want more structural support.

Finally, you may be pressured to sell your business off if there’s potential to make money from it.

Government Support

If the bank has turned you down, there are governmental schemes that you could consider, which are introduced to encourage the banks to approve your loan request.

  1. Enterprise Finance Guarantee (EFG) Scheme – Launched in early 2009, it’s a reworking of the Small Firms Loan Guarantee scheme and boosts your credibility by providing a government guarantee when applying for a loan. The cash for an EFG loan comes either the community development institution or the bank, but you can expect a 75% underwrite of the loan by the government. To you, this means that you get to secure a loan for your business even if you don’t have the necessary amount of money to back it up. For more on the EFG scheme, check out the Department of Business Innovation and Skills website.
  2. Start-up Loans – The Start Up Loans Company will assign a delivery partner, who will be responsible for helping you develop a business plan, which will be funded once approved the Company. Once approved, this government-funding scheme gives you a low-cost unsecured loan, a wide range of business support, and business mentoring. You’ll have 5 years to pay the loan back. And, if you pay interest every month, you can benefit from capital repayment holidays.

You can also get finance from Grants and the Prince’s Trust while you can also consider Invoice Finance, Lend-to-Save, and Crowfunding. Check out our next blog post for more details.

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