14 Jan More ways to Finance your Start-up Business
If you are still trying to get a loan for your start-up, here are some additional ways you could finance your business.
Whether you are eligible for a grant or not will depend on your business or background. Bear in mind that it’s very difficult to find a funding body that will cover all the costs of your start-up. However, every little helps and, with a grant, you don’t have to pay the money you receive back. Plus, you get to retain control of your business.
On the other hand, the application process can take forever and demand a significant amount of your time. And, chances are the money you receive will be enough to cover a fraction of your costs.
The Prince’s Trust
More than 80,000 new entrepreneurs (18-30 years old) have been helped by The Prince’s Trust so far, with low-interest loans, grants, and support (free of charge). Its Enterprise Programme will help you test your idea, write a business plan and star your business so it’s worth a try.
Alternative finance firms out credit-worthy individuals or businesses that need money in touch with investors, cutting out the middleman, which, in most cases, is the bank. This saves you from the tedious and long bureaucracy, but you should be a bit cautious as the industry is still in its infancy and there’re some potential risks to be considered. That said, note that banks indeed tend to pass on loans they can’t help to alternative finance providers.
Invoice Financing allows businesses to access working capital while waiting to be paid. If you have a gap in your monthly cashflow and you lack the capital to take on big clients, then invoice finance is a good option. You will also be able to not only access more orders and working capital, but also accept more orders, since you are free to produce a larger product offering. Finally, invoice finance is proportional to how much finance you need, which means that it can grow with your business. You’ll be expected to pay a percentage of your expected invoice to the platform in return for access to tied-up capital.
However, Invoice finance is a short-termed solution and you must be extra cautious as traditional invoice finance has earned itself a rather bad reputation lately. This is because some companies force businesses to sign long contracts with personal guarantees, debentures, and hidden fees. Plus, the fact that the customer relationships are removed (the factoring providers chase customers and not the business owner), is not something that many entrepreneurs like.
It’s speedy and offers fixed interest rates more competitive than you might get from a bank. Besides, you can lock down funding within a fortnight, rather than months with a bank. Also, if you have a slightly adverse credit history, you could still get a loan because firms don’t rely on a risk-averse committee (unlike banks).
Although the credit-checking process is often stricter than a bank’s, the lending criteria vary, giving start-ups more chances to be accepted for finding, compared to a bank. Online lending platforms, such as Assetz Capital, Zopa, and Funding Circle offer finance for businesses, cutting out the middleman and connect you with investors.
Note: Interest rates may be higher than what you’ll get from a bank because lenders reply on your credit history. If they analyse your credit history and conclude there is high risk of default, they will offer you a higher rate.
Also, expect short repayment period (3-5 years), which means you put pressure on cashflow with the amount of the monthly repayment.
This means you finance your start-up by donations that can be as little as £5 (which makes the industry more accessible than angel investing or traditional forms of investing) via online platforms. But, you will need to convince others to support your project.
Now, there is rewards-based and equity crowdfunding. In the first case, investors don’t expect a monetary gain from your start-up while in the second case, you’ll need to sell off part of your company (like angel investing).
With rewards-based crowdfunding, you may be overwhelmed by the number of potential investors that would want to interact with you. And, if you don’t hit the investment target, the payoff is really little and the work involved just too much. Not to mention the tough competition.
With equity crowdfunding, you may meet accomplished investors that will help your business shine long term. Plus, you can get a minimum of £500,000 from these platforms, as long as you are ready to post your business plans and financials online. And, you’ll have to think of ways you can manage numerous investors.
Starting your own business always involves an element of risk and you should be careful when considering applying a loan, because increasing your debt will just add to that risk. Study your options well and once you understand which is more beneficial to you, work on locking down the best deal.