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Smart ways to finance your new start-up

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If you are the entrepreneurial type or if you simply fancy being your own boss, launching your own start-up can be a smart decision to take. However, for anyone just starting out, the critical question of financing your new venture looms large. It can be a major factor in deciding whether or not to launch a start-up. However, there are several sensible ways to access finance in this initial stage.

startupBefore delving into all of them, it is critical to ask yourself some basic questions about your financial needs. Firstly, think about the nature of your potential business, as this will inform the various avenues of investment which you explore – For example, some lenders are more likely to finance the next big app than others. It is then important to estimate how much money you will need to start and crucially how long you think it will take to start making a profit. After all, every investor will want to see a return. Once you’ve gone through this process, you can begin to think about the following options…

  • Family and friends

An obvious place to start, but don’t dismiss it. These are likely to be the people who believe in you the most and will be the most patient for results. Of course, mixing business and personal relationships doesn’t work for everyone. But, if you think it’s a possibility then it is definitely worth exploring.

  • Bank loan

This is a traditional method to access finance using a very traditional institution – Banks are typically conservative and will expect to see a solid business plan and will be eager to see evidence that you are sharing some of the risk. You will need a good credit record and it is worth doing your research to find the most suitable bank. On the plus side, interest rates on bank loans are usually good value.

  • Credit line

If your credit history gives you access to a credit line or at least a credit card, then this can be a good source of decent finance. Of course, you will need to pay your credit efficiently and sometimes quickly. However, personal credit leaves you in control of the numbers. In addition, cards such as an Amex Payback card allow you to pay in instalments and earn reward points for numerous discounts which could save your business significant money on a variety of services.

  • Grants

It may surprise you, but there are often relatively small financial grants available for small businesses through government, universities or even the corporate world. It is well worth searching online and checking with your local Chamber of Commerce about the possibility of applying for such grants. However, the application process can be lengthy and there is also typically a high level of accountability too.

  • Investor capital

Turning to a venture capital fund (VC) or a potential angel investor is often the first thought which comes to the mind of a start-up owner. They appear to be the dream benefactor which can provide real long-term financial security. However, VCs and angel investors are usually interested in mid-stage companies rather than start-ups. Beware that they also usually have an eye on a swift exit (company sale) and a subsequent return on investment.

  • Peer-to-peer lending

This is perhaps a more novel and certainly collegial approach to investment. Basically, it entails a group of people with a similar mind set, goals or interests who are keen to fund one another’s ventures. Because everyone is quite literally invested in each other’s work, peer-to-peer lending can provide a really supportive environment in addition to convenient finance.

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