As a small business, you have numerous funding options available to you. Of course, this is a good thing, but it also makes picking one rather difficult. And choosing the right one(s) at the right time is really important.
To help you out, we’ve pulled together an overview of your options. And you can see what our experts and community feel about them in their accompanying video soundbites too!
Here’s a glance at the options we’ll be covering
Now let’s take a closer look at your funding and finance options
1. Your own cash
It’s not in the table above because it really goes without saying that you’ll have to put something in at the outset. Indeed, your own cash is typically the first source of financing for your small business. It may be your only initial option if you’re very much at the idea stage, have a lack of current or projected revenue and/or you’re hesitant to give away any equity (shares bringing ownership rights) just yet.
It could also help you gain finance in the future; more often than not, you’ll need to have invested your own money in your business idea before anyone else will be prepared to do so.
Take a look at our guide to what investors look for, which explores the importance of being ‘backable’ and how you can achieve this.
2. Friends and family
One of the most common means of funding a startup that needs to spend money straight away (e.g. on product development), is to raise money amongst family and friends.
This is generally quite a straightforward process. It’s sometimes structured very informally, but it’s always wise to have documentation that clearly shows how much money has been given, what that entitles the contributor to (if anything), and whether the money comes with expectations or requirements.
If your business is a limited company and the ‘friends and family’ money comes with the expectation that it will be converted into shares, you should take a look at our guide to the different types of shares.
You’ll also need our shareholder agreement template (coming soon) and to update your existing articles of association, which contain the rules for how the shareholders can influence your business and what they’re entitled to. And don’t forget to look into the highly attractive tax relief that you can offer these early-stage investors. It will make investing in you so much easier, if you can tell interested investors that a substantial chunk of their investment money can be offset against their tax bill! See our guide to EIS and SEIS relief for more information.
Be wary of promoting your business for investment to anyone, at all times. There are strict rules imposed by the UK’s Financial Services Regulator, and they affect even the youngest startups as well as more established businesses. Our guide to promoting your business to investors can tell you more.
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