Down the ages, the issue of how to raise funds for the growth or start-up of a small company has often been the hot topic over the entrepreneurial teapot. The ultimate recipe for the right startup funding strategy has been a tricky one to get right at the best of times. However, sprinkle a global economic and debt crisis, add in a tablespoon of recession and today it’s clear that every budding entrepreneur must have a clear and well formulated plan to finance their startup.
Here are some of the most efficient ways to raise finance today:
- Don’t discount the banks. While you’ll need a thoroughly water-tight business plan that covers all bases, the traditional bank might still represent your best bet of securing the funds you need to set-up or grow your startup.
- Savings. Assuming you have unshakable belief in your idea and are confident of success, investing your own savings is a good way of getting your project up and running. Going down the self investment route also has the added bonus of not gearing your business up to the hilt right from the get go. There’s another strong reason for investing your own funds into your business – later on, as you look to court additional funds, you’re more likely to find investors when you can demonstrate your personal financial involvement in the startup.
- Friends & family. Beyond the obvious emotional support that your nearest and dearest can lavish upon you, they could also be a valuable source of finance. If you do request family or friends for a loan, emphasize that they’ll be receiving their money back with interest if all goes well. It’s also worth inserting this caveat of caution however – some of the best friendships and bonds have been soured by the lending and borrowing of money going terribly wrong. Be outright and honest as to the potential risks and rewards, and note down the terms of the loan officially in writing.
- Peer to peer loan sites. P2P loan sites like Ratesetter and Zopa have really opened up a whole new world of opportunity to borrowers. These sites have effectively stepped in to the lending void left by the big banks – and they simply match people who need to borrow money with people who want to lend money out at better than market rates. If you’re trying to borrow for your startup, you may need to apply for funding as an individual, and your credit rating will need to be up to scratch as peer to peer sites will weed out loan applicants with a particularly shady credit past. When using P2P sites, the interest rate you’ll have to pay will be directly in proportion to how good your credit history is.
- Business grants. Depending on the type of business you’re starting or growing – and it’s location – you may be eligible for a business grant.
- Asset based finance. With this type of loan, you’re raising finance against an asset that your company owns – this could be anything from equipment and machinery down to unpaid debts that your customers owe you.
- Venture capital. It’s an avenue that should be researched very thoroughly before jumping into, but it’s still possible to raise finance through private equity and venture capital companies.
- Credit cards. It may not sound ideal, but in some circumstances you might be able to slurp up the funds you need by way of credit cards. This method is likely to be more apt for those looking for shorter term funds that can be repaid sooner rather than later.