Starting your own business is an exciting time, but it can also be overwhelming trying to make sure everything, including your finances, are in place. Securing funding for your start-up can be a good idea to make sure you have a good head start, a comfortable cashflow buffer, and plenty of room to grow.
With so many finance options on offer, it can be tricky to work out which one is right for you. To help you decide, we’ve outlined the main start-up funding options and the benefits of each. Let’s get started!
Why does a new business need finance?
You might be in a strong financial position with plenty of your own savings that you can use to get your business off the ground. But chances are, even if you have some of your own money, you’ll still need some additional funding.
Maybe you need to frontload stock, invest in expensive equipment, or grow your business super quick to make it a viable venture. This all has a cost and for many, using finance is essential when starting out.
Types of funding for start-ups
You don’t have to be an existing business to be financeable. As a start-up, there are plenty of funding options on offer, whether through private lenders, banks, investors, or government-backed schemes. Let’s take a look at some of the most popular choices:
1. Personal savings
Many new businesses draw on their own cash reserves to finance their new venture. But aside from your own savings, you can also think about reaching out to friends and family, if possible, to see if they can offer financial support too.
2. A start-up business loan
You might need upfront capital to help with the costs of opening your new business, for example, rental costs, staff salaries, or new stock and equipment.
Most banks and other loan providers offer special business loans for start-ups. This includes standard-type loans, where you borrow a sum of money and agree to pay it back, plus interest, over an agreed period of time. It also includes other finance types, like:
Merchant cash advances
If your business takes customer card payments it’s possible to borrow a lump sum and pay it back through a percentage of your card payments.
Invoice finance
Cashflow can be stressful when you’re starting out. It can be a tricky balancing act making sure you’re getting enough money in from clients and customers to be able to pay your vendors and bills. With invoice finance, a lender advances you the value of your invoices and you pay it back as soon as you receive payment. This means you can get paid quickly for your work.
3. Credit cards
Credit cards can be really useful when you need easy access to extra funds. They can help you spread the cost of expenses and better manage your cash flow. Some also offer clever integrated accounting software that makes keeping track of finances and running your business easier.
Damian Brychcy, COO of Capital On Tap says “There are two key benefits to using a commercial credit card for small business owners. The first is it lets them separate their business and personal spend, especially when things are tougher from an economic perspective. It’s really important that the business has its very separate finances from the owner’s personal finances. The second thing that corporate credit card lets you do is it gives you more tools to run your business.”
If you’re ready to expand your start up business, you can apply for the Capital on Tap Business Credit Card, issued by WebBank.. You’ll benefit from no annual fees, low-interest rates and 1.5% cash back on every purchase.
4. Government business grants
The U.S. Government provides various grants for start-ups and small businesses. These can prove difficult to qualify for as they usually have strict eligibility criteria and there’s lots of competition. But, depending on your location and industry, there might be grants you’re eligible for that are worth applying to. A few examples are:
5. Government-backed start-up loans
The U.S Government also offers Small Business Association loans to businesses to help them launch or grow their business. If you’re eligible you can access up to $5.5 million but remember, you will need a good credit score to qualify and will need to pay the money back with interest, like any other loan.
6. Crowdfunding
Crowdfunding can be a great way to encourage friends, family or others to make a small low-risk investment in your business. There are various online crowdfunding platforms where you can set a funding target and share the link via email, SMS or on your social media accounts to encourage contributions. Usually, in return for financial support, investors will receive a small share in your company.
7. Angel investors
Angel investors are usually wealthy individuals who like to invest in start-ups and small businesses. If you’re looking to build your network and find potential Angel investors there are various forums to help support this, including the Angel Capital Association, the Angel Investment Network, and the AngelList.
8. Corporate investors
Corporate investors are similar to Angel investors, but rather than an individual, it’s another company investing in your business. The benefit of this is that other businesses tend to have a higher net worth and more money that they’re willing and able to invest.
Is it easy to get start-up finance?
Depending on which route you choose, various factors can affect how quick and easy it is to secure start-up funding.
Most private investors will want to do their due diligence on your finances and make sure that you are a sound investment before they commit any money. Most banks and lenders will want to know that you have a good credit history, can afford the repayments and are not borrowing more than you can afford before offering you a loan or credit card. Remember, like securing any personal finance, if you have your finances, accounts and credit report in order you’re more likely to get better deals and be approved more quickly.
With so many options to finance your start-up, there’s sure to be a perfect fit for your new business idea. Whether you’re looking for investors, crowdfunding, government backing, or plan to use your own savings, there are many ways to finance your new, exciting business venture.
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