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Business start-up funding – six options
We hear a lot about funding from our customers, so we thought we’d share this with you. The fact is, if you’re struggling with funding your new small business, you’re not alone. The options may seem endless, not to mention complicated, so which one do you choose? Do you go for angel investment, crowdfunding, venture capital or start up loans? Or is a bank loan or government grant best for you?
Based on what we’ve heard, we’ve drawn up a quick guide to help steer you through the pros and cons of the 6 most popular investment options available.
Good for early-stage businesses, this is where an investor provides you with business funding in exchange for equity – a bit like Dragon’s Den. Funding is usually between £15,000-£150,000, but could be a lot more.
You’ll benefit from the angel’s experience as well as their finance.
Giving up equity means losing some of the control of your business. Angels often have high expectations as well.
Most commonly in digital or tech industries, lots of people give you a little money in exchange for equity. Funding can be anywhere between £5000 and £2.5 million.
You can raise money quickly this way. Investors often become evangelists for your business as well.
Giving up equity means losing some control. Investors may also have limited business experience.
Also known as peer-to-peer lending, many people lend your business money which you pay back with interest. Any industry is eligible. Funding can be anywhere between £5000 and £2.5 million.
You can gain fast access to funding this way, so it’s a good route if you’re struggling to find a loan.
Interest rates are usually higher than the banks’. You’ll also have no access to business knowledge or support.
Private equity firms invest in your business, often seeking out businesses that will disrupt an industry. You could have access to funds anywhere from £150,000 to £10 million this way, by far the highest amount of all the options available.
You’ll benefit from these firms’ knowledge and business expertise. They’ll also be able to facilitate a sale or IPO.
They usually impose tight conditions, such as a 5- to 7-year timeframe. You could also lose control of your business.
Small business grants
These government grants are often project-based, and apply to conservation, renewable energy, social, community or NFP sectors. They could range anywhere from £100 to £1 million.
If you meet the grant conditions, you shouldn’t have to pay the money back. You’ll also probably have access to a business mentor or other business knowledge.
These grants are often hard to come by, and involve a long application process.
Small business loans
This traditional method is by far the most popular. Nearly $16bn is raised each month in start up funding in the UK this way. The bank loans you money, which you pay back with interest. They’re less likely to take risks with your business though, so you’ll usually need to be in an established industry.
Interest rates are lower than with most other options, and you won’t have to give up any equity.
However, there are stringent funding requirements. They may also ask for significant collateral.
Decide which solution is best for you
The most common form of funding is still through traditional bank loans, but there may be reasons why this isn’t good for you.
Debt-based crowdfunding is another commonly used source, raising more than £3.7 bn per year.
However, the best funding method for your start-up depends ultimately on your particular circumstances and the nature of your business. Only you can decide this, but QuickBooks offer a lot of useful support and advice along the way on the QuickBooks Blog. And, of course, our software will help you manage everything from cashflow to payroll.
Feel better informed about business start-up funding? The QuickBooks Blog covers a wide range of business-related topics, designed to help you grow and develop your business.