Luckily there are many types of funding available for start-ups, it’s just a question of finding one that you feel best suits your needs.
Borrowing from the Bank
A bank loan offers a fixed amount of money for a fixed term, and is one of the more secure options. Unfortunately, despite various initiatives implemented by the government, including the Funding for Lending scheme which saw the Bank of England hand out over £16 billion to lenders, it is increasingly difficult for SME’s to obtain bank loans.
Recent figures have shown that lending from banks to start ups and SMEs has dramatically decreased – the latest Bank of England Trends in Lending report revealed bank lending was down by £4.5 billion in the three months up to May. One of the major drawbacks is that because they are not necessarily specialists in launching businesses, it can take a lot of time. A bank will thoroughly scrutinise your business so you should only approach one if you know that your proposition is water-tight.
Releasing capital from your property
Using your house as collateral to take a loan from a bank is usually cheaper than a personal loan. It means that you do not have to justify your business to the bank, and if you can fund your business solely this way then it may not be necessary to have any shareholders. However, you need tobe aware that there is a risk of your home being repossessed by the lendershould you fail to keep up with payments on your loan.
Raiding your savings
Using your personal savings means that you have total control over your venture. Unfortunately this is not an option for the majority. The average UK adult now has just £1,574 in savings (a 15% decrease from 2011) and worryingly over a quarter of us have no savings at all. If however you’ve been prudent enough to have more savings than the average person then this should be your first route.
Venture out to venture capitalists
If you’re experienced in business, or a young tech entrepreneur, then you may choose to go straight to the ‘Dragons’ Den’, and pursue the Venture Capitalists, or ‘business angels’ of this world. VCs have specialist knowledge and can help you with different aspects of your business from finance to marketing. Companies like Canaan Partners, Octopus Investments, Eden Ventures and European Founders Fund have invested with us, and others such as Accel, Atlas and Index ventures also have investment funds for start-ups. However, always remember that they will take part of your company in shares in return for any investment. Also be aware that some Venture Capitalists prefer to invest in companies that are at later stages of development.
Investment from family and friends
You may be lucky enough to have friends or contacts that are wealthy enough to invest, but there is always a risk of ruining personal relationships. There are also private equity firms who offer no limits on the amount of money invested and do not call for minimum monthly payments. Typically though, they do tie up your capital for long periods of time.
Non-bank lenders, or specialised banks, such as the Silicon Valley Bank, (similar to a traditional bank but working mainly with tech businesses and start-ups) may offer venture capital debt. In contrast to venture capital, you do not always have to give up large amounts of equity at a low valuation. This means your stake in the company will not necessarily be diluted. Their interest rates tend to be higher than a standard bank and it helps if you are an experienced entrepreneur.
Making the most of Crowd funding
Crowd funding is a platform (often online) which gives new businesses exposure to a wider audience of potential investors. Investment amounts can be large or small, offering an extended range of people – the crowd – the opportunity to invest in new ventures. As a result of this, more potential funders are available for start-ups. Great examples of crowd funding platforms include Zopa, Ratesetter, ‘Bank to the Future’ and ‘Funding Circle’. Often time, patience and dedication are required before a substantial amount of money can be raised. If you have a successful track record of launching businesses, or a celebrity connection, it will help you raise money quicker.
Loans are a fast way to obtain funds for expensive purchases that require immediate payment. Sometimes these loans can be accessed even if you have previously had a bad credit rating. You are in complete control of how you spend the money you receive but as there is no collateral security, the interest rates tend to be extremely high.
Using assets as collateral
Personal asset loans allow you to release the capital tied up in your private assets without having to actually sell them which can be a more accessible route to obtaining finance. Companies like borro offer small business owners, entrepreneurs and other customers short-term loans of £1,000 to £1,000,000 secured against assets including fine art, antiques, prestige cars, luxury watches, diamond jewellery, gold, fine wine and other high value items.
The main advantage of using a personal asset loan is that there are no credit checks and the asset can be redeemed at any time without penalty. As the loan is secured against the asset, credit can often be released within 24 hours making it much faster than leveraging against property.
[box]Paul Aitken founded borro in August 2008, and the company has created a new lending category. borro offers loans from £1,000 – £1,000,000 secured against personal assets including jewellery, luxury watches, gold, fine art, antiques, sculptures, prestige cars, yachts, and other high value assets.[/box]