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There are many different types of loans and funding that are available to you as a small business owner. Ranging from investors, loans, grants and crowdfunding, there is always something suitable for your business!
Business Loans
Typical business loans are designed for commercial organisations, instead of personal loans for a start-up. Like many of the other options, it is paid back monthly. You can borrow between £1,000 and £15,000,000 and pay it back over 1 month to 25 years.
There are 2 categories that most business loans fall into:
- Unsecured: This loan allows your business to borrow money without using your business’ assets as security if you can’t repay.
- Secured: This loan allows your business to borrow money using your business’ assets as repayment security. In the chance you can’t repay your loan, the lender is authorised to sell your assets to cover the loan. These types of loans typically have lower interest rates, and as such are more useful for borrowing larger amounts.
A business asset is anything of value that your business owns, for example property, stock and machinery.
You can use a business loan for almost anything that will improve your business, for example: purchasing new/existing stock, employing new staff, moving buildings, paying off current debts, purchasing new equipment, scaling business operations.
Government Business Start-up Loan Scheme
This was launched back in 2012 to encourage entrepreneurship. The government-backed loan scheme offers low-interest personal loans and free mentoring to help you start or grow a new business. You can loan anywhere between £500 – £25,000 if you are looking to scale or expand your business. The interest is fixed at 6% per annum and can be repaid over 1-5 years. Unlike a business loan, this is an unsecured personal loan.
A detailed business plan and cash flow forecasts are required to be approved for the loan, however, there is support offered by Start Up Loans with writing these. If successfully approved for the loan, you will be paired with a mentor for 12 months of free business mentoring. It is a great alternative for people looking for a business loan to fund a start-up.
Crowdfunding
Crowdfunding is the act of securing large amounts of funding for your business or start-up through the collective effort of investors, family, friends and customers who donate a small amount each. If the service or product that you are offering shows someone that it will benefit them, they can invest amounts as low as £10, which when your product appeals to a lot of people, large amounts of money be raised!
Crowdfunding has become more popular in recent years, with a lot of new start up companies using this method in the very beginning. It gives you the opportunity for the initial boost you need to get your business up off the ground!
Pros vs Cons of Crowdfunding
Pros
- It can help you to build your brand from scratch
- Social media sharing from investors can build brand awareness and more investment
- You don’t have to offer a physical product to the investors, it can be a perk
- Services or products that don’t appeal to private investors have the opportunity to still raise significant capital
- You can get lots of feedback from the public who invest in your business
Cons
- If the financial goal isn’t achieved by your business then all of the investors receive their money back and your business will be left without any of the raised capital.
- Running a crowdfunding campaign without the help of experts can be challenging alongside day-to-day running of the business
- If you forget to patent your product/services, they can be stolen by another company
There are many different solutions to raise capital for your startup business. Different methods are suitable for different businesses depending on the product/selling you are selling and the amount of capital you need to raise.
