There are plenty of potential sources of money to help your startup business flourish.
More than 600,000 Britons started their own business in each of the past three years. And January is a key month for entrepreneurs returning from a Christmas break determined to turn their ambitions into reality. But you'll need funding to do so: enough to cover the costs of launching and to ensure you can get by while you're working to turn your first profit.
Bank lending to small businesses has dwindled over the past decade as banks have sought to reduce risk following the financial crisis. Even before the crisis, banks were reluctant to offer significant amounts of credit to brand new ventures; they want to see at least some history of a business trading successfully before they consider lending to it. Still, the good news is that the number of alternative sources of funding has increased.
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Where to start
The StartUp Loans Company's loans are affordable, repayable overup to five years at an interest rate of 6% a year, and don't require you to put up any collateral or security. The finance also comes with 12 months' free mentoring and business advice from the organisation.
Even if you decide this isn't the route for you, it's worth looking at the organisation's website, which has lots of useful information on the basics of starting a new venture, from doing the right market research to writing a business plan. These could be crucial in helping you to secure finance elsewhere.
You may even be able to obtain a grant rather than a loan that has to be repaid. The central government and local authorities all offer a range of different grant schemes, with eligibility and conditions varying enormously. The startups.co.uk website is a good starting point for researching what's available and how to increase your chances of a successful application.
In the private sector, a community development finance institution (CDFI) could be another possibility. These organisations target borrowers who normally find it hard to get credit. They offer a range of finance, from bridging loans to working capital. Responsiblefinance.org.ukhas the details of many ofthese organisations.
Explore alternative finance
Crowdfunding is also popular with some entrepreneurs. Online platforms such as Zopa, Funding Circle, Seedrs and Crowdcube enable you to pitch your business to a large group of investors offering either debt or equity funding. They only have to make small commitments each, which can help overcome the risk of lending to you.
There are, then, many more sources of funding than you may realise. Plan your venture carefully on the basis of research into the existing market and the potential size of the opportunity, and build contingencies into your projections. Any funder will want to see this groundwork before agreeing to support you.
David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
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