Business funding solutions
You’ve started your business in the UK or you’re thinking about starting it. But your biggest question is what business funding solutions do you have available to you? As an entrepreneur in the United Kingdom, you have quite a few options.
In this blog we’ll explore
- How to fund a business in the UK: Business funding solutions
- How business funding is helping startups
- Advantages and disadvantages of funding
- Funding vs bootstrapping
Between loans, investors, grants, angel investors & venture capitalists, identifying the best type of funding for your startup is crucial to its success. The biggest question where business funding solutions are concerned however is what options are available and which is best.
Options that we’ll cover are:
- The government startup loan scheme – With an interest rate of 6% per annum and payable over 1 to 5 years, launched in 2012 to encourage entrepreneurship, the Start Up Loan scheme is a government-backed personal loan of between £500 and £25,000 available to anyone looking to launch or expand a small business.
- Angel Investors – Angel investors are wealthy individuals looking to invest in startups at their earliest stages. Many angel investors have launched a successful business of their own. It’s usually a better idea to pitch your startup to an angel-investment network rather than approaching them individually. Here’s a list of angel investment networks in the UK, each of which specialize in different areas, business types, and industries.
- Crowdfunding – This is one of the most popular ways to attract funding for your startup5 in the UK, with a range of platforms offering different models of investment. Crowdfunding gives your startup an opportunity to not only simultaneously raise money and generate publicity, but also to gauge interest in a product and develop it as the business grows. Reach out to Drop Funding and let’s see how we can assist.
- Peer-to-peer business loans – When it comes to handing out loans, large banks typically shy away. Obviously. As such, they don’t easily or readily provide funding to businesses that haven’t yet proved themselves. But other lenders aim to help young companies looking to expand. Funding Circle was the first peer-to-peer lender to launch in the UK and connects a small group of investors directly to new companies in need of cash: Qualifying startups are given easy access to unsecured business loans of up to £500,000.
- Venture capitalists – A venture capitalist is an investor who funds small startups with very high growth potential. Almost every notable startup success story involves a VC, you could be next. A venture capital fund is a type of private equity fund that is funded by private and institutional investors like investment banks, insurance companies, and pension funds. Venture capital investors in the UK contribute investment to tiny or start-up businesses with high development potential.
How business funding is helping startups
First of all, funding allows you to scale and enable growth. Startups spend their funding on growth, marketing, and most likely staff and team expansion. These three areas are critical to the success of any startup.
If a startup is going to use savings or personal funds, then the best way to spend their funding would be on a couple of things. The first thing they might invest in is tangible assets that will generate the most value over time. Getting a third-party or external investor gives you options along with additional funds.
The funds given to you by investors can easily be used to build brand awareness and better your product or service offering. Ideally the goal is to make that money back along with some profit. The best way to do that is by focusing on adding value and getting out there. Business funding solutions give you that flexibility.
Advantages and disadvantages of business funding solutions
A key aspect of your business plan that you should examine is how you plan to finance your operations. Although a combination of self-funding and loans is common for many small business owners, you also have the options we explored above that involve outside investors. However, like other financing options, investor funding has its limitations.
Advantages of business funding solutions
- It’s not a loan
- You don’t need a proven credit history
- It gives you access to the investors’ expertise and network
Disadvantages of business funding solutions
- It dilutes your share of earnings
- The stakes are higher
- You may lose some control
Funding vs bootstrapping
When starting your company, the first thing to consider is this: should you bootstrap your company, or try and raise funding? Now, whether or not you accept funding from external investors, just know that external funding will have a bigger impact on how you structure and run your company — so this is a crucial decision that’s not to be made lightly.
What is bootstrapping? To put it plainly, funding your business using funds that you’ve personally gathered without any external sources or assistance. If you’re starting up a company with whatever money you have on hand and from the profits you’re earning, that’s bootstrapping.
Should the market you’re in affect your bootstrapping vs funding decision? Yes, most definitely.
Assuming you’re in a highly competitive market that’s been dominated by big players for a while, this means that you’ll need to scale as fast as possible and become or remain the dominant player. For example, the e-hailing industry. It’s dominated by major players like Uber & Lyft. This most likely means that you won’t be profitable in the near future and need investment to afford your growth.
If you’re in a fragmented market where many mid-sized firms co-exist, then funding may not be necessary. Under these circumstances, you might be able to bootstrap your own company, and grow it yourself. Besides, you’ll get that sense of self-pride! The question is, which is better? We can’t say. But we can help you make a decision! Reach out for a consultation.
We hope you enjoyed our article on Business Funding Solutions. If you have any questions or comments, please contact us by visiting drop.studio.