Imagine you’ve had a business idea recently. You’ve prepared your business plan and you know how much money you will need to invest in your business to launch it. But you’ve realised that you don’t have enough money to start. You think about how other entrepreneurs have overcome the same financial challenge when they started their businesses. Should you invest all your savings? Should you invite one of your friends or someone from your family to become your business partner? Should you talk to your personal bank manager? Perhaps an investor?
There are many options available to you. Some options are quicker than others. Some are more expensive than others. You need to think and analyse each option carefully as each one has advantages and disadvantages. Here’s 9 of the best ways to raise the money you need to get your business up and running.
- Your own money
I learned a very hard lesson when I started some business initiatives where I was the only one investing money, while my partner, who most of the times had the business idea, did not invest a penny. I don’t do this any longer. Why should I invest my hard-earned money when my partner does not want to invest theirs? Does he really believe that his business idea will work? And if the business idea does not succeed, why should I be the only one losing money? I have met many individuals who own properties, assets and personal savings and who don’t want to invest their own money in their business idea. They start knocking on every door they can and try to find someone willing to invest in their business. They want to spend your money rather than theirs and if something goes wrong they will try their next business idea with someone else. They don’t stand to lose anything. If you are serious about your business idea and are 100% committed to your business , you should be the first one to show everybody else that you have invested your own money. If you are not willing to take the risk, why should anyone else? Banks, investors and other lenders will want to see what you have committed to the business and that you will also lose money if your business doesn’t get it right.
- Friends and Family
You need to remember that your friends and family members know who you are. If you have a good reputation and good credit history with them your chances of getting a loan increase. You can have the best business idea ever but if you are unreliable they will not lend money to you. There are two options available when approaching people you know: loan or partnership. A loan from a friend or family member to an entrepreneur is very common, but you really need to treat the loan the same way as you would a loan from a bank. You need to talk to your family member or friend to organise how the loan will be paid back to them and what the interest rates will be. Just because they are not a bank does not mean you will not be expected to pay interest on the loan. Be professional. The main advantage to having a family member or friend as the lender is that they will normally be more willing to give you a long holiday period before starting the loan repayment and if you need extra time they may be more willing to give it. Having someone from your family or a friend as a business partner is also an option. In this case, please be absolutely sure you will be able to work with this individual as a business partner. If the business does not succeed make sure you have a loan repayment strategy to pay back your family members. Never mix personal matters with business matters. I have seen families destroyed and friendships broken because the agreed terms were not adhered to.
- Bank Loan
Banks are willing to lend money to individuals. If you have a good credit history with your bank, you can try to apply for a personal bank loan. Some banks even have an automatic loan application online. You must bear in mind that most banks will only lend up to a certain loan amount with no guarantee. Obviously you as an individual will be responsible for paying back the loan. The vast majority of banks lend up to £25,000 with no guarantee. If you are looking to apply for an amount higher than £25,000 you will need to offer collateral, such as your house. Some banks also work with the Enterprise Finance Guarantee Scheme. We will cover the Enterprise Finance Guarantee Scheme a little later in this article.
- Business partner
Having a business partner could help you raise the money you need. But having a business partner is not just about having the money available. You also need to consider how you will divide each partner’s responsibilities. Will the business partners have a salary? How will the business profits be distributed to the business partners? Do the business partners have the same business objective?
- Investor
An investor is a company or individual who is willing to allocate capital to your business (money or equity) in exchange for a financial return. There is a difference between amateur and professional investors. If you are looking to find an investor make sure you take the professional investor route. These are professional individuals who make a living out of investing in businesses and who understand the rules of the game. Having a professional investor who has experience in your industry can make a huge difference to your business. Investors can also bring in business contacts and reliable professionals. The vast majority of professional investors want to allocate capital by buying shares in your company. In some situations the professional investor will want to keep the shares and grow the business to a higher level but most will want to sell their shares once their desired financial return is reached.
- Crowdfunding
Though the crowdfunding model has been in the market for many years in different forms, it has only relatively recently become a popular option for raising finance. Crowdfunding is the process of funding a venture by raising money from a large number of people. The main advantage to raising money on a crowdfunding platform is that if your project is very good, you can raise your personal business profile and improve your reputation. You can also get free market research as potential funders will study your business idea and provide you with feedback. It’s also an opportunity to engage with your audience. Most of the crowdfunding platforms offer a free forum where you can share feedback and receive comments from your audience.
Websites :
http://www.crowdfunder.co.uk
https://www.crowdcube.com
https://www.kickstarter.com
https://www.seedrs.com
- Start-up loans
Start-up loans are an independent, government-backed scheme supported by the British Business Bank and designed to support businesses who struggle to access other forms of finance. A start-up loan is a personal loan available to individuals looking to start or grow a business in the UK.
Each business partner can raise up to £25,000 with a maximum of £100,000 per business. The start-up loan company looks at two main factors when deciding who to lend to: the individual affordability and the viability of your business plan. The interest rate is about 6% per annum. The loan must be paid monthly and there is a loan repayment term of between one and five years. There is also up to 12 months of mentoring and business support. It is an unsecured personal loan which means you won’t need to worry about having any assets or guarantors to support your loan application. N.B. Remember, a start up loan is a loan and not a grant!
Website : www.startuploans.co.uk
- Enterprise Finance Guarantee Scheme
If your business operates in the UK, has a turnover of less than £41 million and is seeking between £1,000 and £1.2 million, your business could be eligible for the Enterprise Finance Guarantee Scheme. The Enterprise Finance Guarantee (EFG) is a loan guarantee scheme for good businesses which don’t yet have a proven track record. The delivery of the EFG is delegated to the lender. Most lenders are high street banks, like Barclays, Natwest or RBS. The government acts as a partial guarantor on up to 75% of the bank loan, but have no role in the decision-making process. There are many options available: new loans, refinancing of existing loans, overdraft conversions, invoice finance guarantees and overdraft guarantees. Remember that you will be responsible for 100% of the EFG, not just the 25% not covered by the government.
- Vertice Services Business Loan
We are proud to offer an option to benefit small and medium-sized businesses. You can borrow from £5,000 to £1 million over 6 months to 5 years. The loans could be unsecured or secured and it could be used for: Growing your business, working capital, cover one-off business costs, buying an asset, develop a property or get a commercial mortgage.
Contact: www.verticeservices.com | 0207 328 8338 | [email protected]
Should you have any questions or suggestions, please feel free to get in touch with us at 0207 328 8338 and we’ll be happy to assist you.
