Finding the cash to start a business can be a daunting prospect, however there are many different options and resources available for start-up businesses. The new government agenda recognises the need to support innovation and entrepreneurship and there are also many private and corporate investors who are keen to invest in start-ups when they can see potential future profit!
In order to get funding for your start up business you must be able to provide evidence of your businesses future commercial success.
How to get ‘Investment ready’
Just because you believe you are in need of outside funding to release the potential of your business, this does not mean that you are ‘investment ready’. In order to become investment ready you need to align the interests of your business as closely as possible with the interests of your potential investors.
In order to attract investors you need more than a good idea for a product or service, you also need a robust business plan, a strong management team, credible and impressive sales and profit figures, good knowledge of your market and a strategy that will deliver the returns to your investors.
In the very early stages of a business, the business can often be financed by money borrowed from family and friends or through a business bank loan or credit cards.
Whilst only a small amount of money might be needed to physically get the business up and running, revenue from sales will often tend to be small particularly in the early days. If the business is to grow, larger funds will be needed to develop the business and to get the business to the point of profitability and self-financing.
The problem that start up businesses face is in securing the external equity needed to make their businesses a success. However there are several ways to secure business finance to start a business.
The first option is the range of UK and EU grants, which include Enterprise Capital Funds, which have been put in place by the government to support businesses. The funds are a mix of public and private funding targeted at UK businesses seeking investments of £250,000 to £2 million.
Grants are the cheapest way to fund a start-up business, however there is a lengthy application process, few grants are awarded and it can also take more than a year for the funds to be released. If grants are awarded they usually come with specific rules, for example the funding must be used for a specific purpose.
There are organisations such as NESTA, which is the National Endowment for Science Technology and the Arts. NESTA receives funding from the National Lottery and uses the funds to promote innovative companies.
To get a loan, businesses are often required to provide some security to borrow against and often need to prove their prior credit history, stability and financial growth, all of which can be difficult for a start up business.
Business Angels or private investors can provide equity for start-ups, they call this ‘seed capital’ they look for businesses with good profit prospects. Business Angels and private investors can be a great source of funding for small or start up businesses but they can also provide expertise and contacts which can be crucial for the development and growth of the business.
Once the business is up and running and can prove its earning potential then the business is often in a stronger position to seek other types of business funding.
For further information about business finance please contact our advice team on 0800 597 4757 or apply online using the form opposite.
- Business Finance – home
- Overview of Business Finance
- Finance for Business
- Funding to start a business
- Small business funding – fuelling your growth
- Small business finance for better cash flow
- Finding the best deal – search for funding
- Guide to business overdrafts
- Guide to Business Credit Cards
- Business funding for distressed businesses
- Business finance – protecting future income with credit protection
- Avoiding financial difficulty