Funding is often the biggest barrier for new businesses and remains just as essential as you grow and develop your business.

There are a wide variety of funding options available to businesses, but the most important thing is matching the type of funding to what you need it for.

Debt, investment and everything in between

Options range from business loans and Government-backed schemes to family investment and external investors.

Each brings different trade-offs around cost, risk, control and flexibility.

Here are some funding options for new businesses to consider:

Business loans

Most business owners will look at bank loans or third-party business loans as a means for funding their business through an initial debt.

However, obtaining a loan as a new business can be difficult, as lenders usually require a robust business plan and forecasts.

They will need confidence that the business can repay its borrowing, which means demonstrating realistic income assumptions, manageable costs and a clear cash flow.

Some loans may require personal guarantees or security, so you should always make sure you fully understand what is at stake if trading does not go to plan.

Family funding

Family loans can be flexible but carry emotional risks. Clear written agreements are essential, covering what happens if repayments are late or if circumstances change.

However, these are not without risk as it can put a strain on family relationships if things don’t work out.

A loan to a family member also doesn’t necessarily mean it will be interest free, but you will likely get more favourable terms than a loan from a bank or other lender.

External investment

External investment can accelerate growth but involves giving up equity and control.

Angel investors may bring experience as well as funding, but they often expect high returns.

Alternatively, you could look at peer-2-peer investment platforms as an alternative, where multiple smaller investors provide funding to your business in return for equity or other benefits.

You should understand investor rights and long-term implications before agreeing terms.

Soft loans and grants 

There are a wide variety of loans and grants that fall under this category, which typically enjoy Government backing and better terms than are available elsewhere.

Soft loans include the Government-backed start-up loans referred to above, as well as those available from third sector organisations, trade bodies and local Government organisations.

Similarly, grants tend to be Government-backed but can also be offered by third sector organisations, large businesses, trade bodies and local Government.

They tend to be offered for specific purposes or with conditions restricting their use to capital expenses only.

Both soft loans and grants can prove to be highly effective avenues to getting your business off the ground.

Need help seeking funding?

Before accepting funding, professional advice is essential, as the wrong funding option can create financial pressure on your business for years.

To find out how we can assist you with funding options through our network of professional contacts and preparing the information that is essential to seek a loan or investment, please get in touch.

This is the seventh article in a series of blogs to guide you through the process of establishing your next business.

Please find the rest of the series below:

We also have a more in-depth series of articles on our website covering the different approaches to funding.

Posted in Blog news.