Government funding

• The government provides new businesses with access to start-up funding. Start-up loans range from £500 to £25,000 and can help a business get established, covering the initial costs of purchasing equipment and getting ready to begin trading.
• Another option from the government is a start-up grant, which is a non-repayable lump sum made available to a business. These grants have to be applied for, so it isn’t guaranteed that a business will receive this type of funding.

There are many grants to choose from, ranging from schemes to help encourage businesses to take on apprentices or fund training to helping with building repair or promoting growth. The government website contains a list of the different grants available to businesses. However, it is important to note that many grants are limited by a business’s size, sector or location.

Please see this link for a list of schemes (including grants, loans and awards, etc.) that you can apply for.

Crowdfunding

• Crowdfunding is the idea of using the power of the internet to gain small amounts of funding from lots of individuals to raise a meaningful amount of money for a business, project, product or cause. Crowdfunding websites offer small businesses the opportunity to raise money in this way.
• Start-up crowdfunding is becoming increasingly popular as many start-ups are now seeking to fund their enterprise this way, especially in times of economic downturn.
• There are three main types of crowdfunding:
  1. Equity-based crowdfunding, in which individuals and private investors receive a percentage of equity of a company in return for their funding/investment.
  2. Loan-based crowdfunding, which connects lenders and borrowers directly using an online platform such as the Funding Circle. There are still strict guidelines that must be followed.
  3. Reward-based crowdfunding, in which individuals pre-purchase products or agree to support a product’s development, and in return receive a reward.
• The UK Crowdfunding Association has a helpful list of sites.

Peer-to-Peer lending

• Peer-to-peer ('P2P') lending brings borrowers and savers together with competitive rates of interest for both parties. P2P lending could be described as a form of loan-based crowdfunding.
• Please see this link for more helpful information

Investors

An alternative option to loan financing is to obtain investment in your business from other businesses or individuals.

• If you ask friends and family to invest, make sure you still put the terms of any agreements in writing. You should also discuss any ‘what if’ scenarios, such as what will happen if you go bankrupt. Investments from other sources could take the form of a loan, where you agree to pay them back a sum of money at a future date, possibly with interest. Whilst it's ok to ask your family and friends to invest, there are restrictions in seeking investments from the general public (aside from regulated crowdfunding).
• Alternatively, a common way of making investment attractive to your business is to offer a portion of your business to the investor in return for their investment. Be sure to carefully consider how much money you require and how much of your business you are willing to offer up to ownership by someone else, because it is difficult to reverse such agreements once completed. Also bear in mind that this calculation reflects on the value of your business. For example, if you ask for £1,000 in return for 10% of your business, you are effectively valuing your business at £10,000.
• Make sure that you would be happy to work together and communicate with any potential investors because they may take a role in running your business, to a greater or lesser extent depending on the value of their investment. You must also ensure you keep any investors up-to-date on the state of the business.