Last year’s report from FreeAgent revealed that one in ten UK workers intend to start their own business within a year. With 3.2 million more Brits expected to become their own boss, that’s a lot of people who will be looking for business funding to get their start-up off the ground.
Many people might not know where to start or what route to go down. Luckily, there are a few options to choose from. We explore different funding options and the pros and cons of each below to help you make the decision best for you.
Loans
Starting with the obvious choice, many newbie entrepreneurs head straight to the bank or someone they know to find a loan to cover their start-up capital needs. However, being in debt when you’re trying to make money is never ideal.
Pros
- Not just limited to bank loans, you can also go for peer-lending
- You can shop around for the best interest rates, repayment plans
- You won’t have to give up shares in your company
Cons
- No one likes to be saddled with debt from day one
- If you have poor credit history you may struggle to be approved or will have high interest rates
Crowdfunding
Crowdfunding has jumped up in popularity over the past few years. Big names like craft brewer BrewDog, VR start-up Oculus Rift and the Pebble smartwatch have all seen success from crowdfunding and have gone on to become billion dollar companies.
It’s relatively easy to set up and share online through social media campaigns.
Pros
- Cheap to set up. If the funding falls through all investors usually receive their money back
- Successful projects can get brand exposure before they’ve opened their doors
- It’s easy to set up online and market cheaply through digital marketing
Cons
- Might not be suitable for those who need large amounts of start-up capital
- It can damage your reputation if the crowdfunding fails
- It often needs a lot of marketing to get it off the ground
- If you don’t copyright your idea it can be easily stolen
Angel investment
The “angels” in angel investment are successful entrepreneurs who choose to help a business grow in the early days. They can provide finance and often guidance and mentorship to help new entrepreneurs get a little boost early on in their careers.
Pros
- Mentoring from someone who’s already been successful
- Useful business connections
- No loans to pay back, no interest
Cons
- You’ll have to give up some shares
- Lots of other people are looking for funding this way, so it’s harder to get
Venture capital
Venture capitalists are similar to angel investors as it involves investors providing funding for start-ups. The capital comes from successful investors, investment banks or any other financial institutions. Aside from funding, they also tend to provide support and mentorship.
Pros
- No loans or interest to pay back
- Support from successful investors
- Business connections of the VC firm
Cons
- You’ll have to give up shares and control
- As VCs can invest a lot they have the potential to take the majority of the company from people desperate for the start-up cash
- There’s a lot of competition
- The time has to be right for VCs to invest so they’ve got enough time to see a return
Whatever option you decide to choose, make sure you’re prepared to hand over a detailed business plan. Investors and lenders want to know that they’re going to see a return on their investment either in the form of dividends or interest from a loan.
A business plan is a great way for you to set out all your aims, show off your market research and put forward a case for you being the right person to run that business. If it’s a solid plan, lenders will feel better about handing over their cash and you can be on your way to business success.
Have you looked into or tried one of the funding methods above? Which option are you considering? We’d love to hear your thoughts in the comments below!
