As many startups will tell you, receiving a bank loan to expand your business can be pretty tricky, especially if you don’t yet have much trading history. So, thousands of entrepreneurs seek alternative funding sources to ongoing their business fund. There are loads of categories, from personal savings and family loans to grants and crowdfunding. Here’s our top 10.
1. Savings/Family Loans
Let’s receive the obvious one out of the way first. If you have cash sitting in a bank account, then using that should be the first matter you do. You might use a redundancy payout or even sell a property to receive your dream off the ground.
The other straightforward category is to ask family members or close friends for financial assistance. It can work, but it’s essential to ensure that both parties know. Ensuring the terms are clear and a good agreement that can refer back to later is the key to confirming a family loan doesn’t lead to any painful scenes down the line.
So, approach family loans the same path you’d want any other investment. Be clear about how much money you like, what it would be used for, your business plan, and how you plan to repay the loan.
When you’ve ever had a bank account, then you maybe know how an overdraft works. Once your balance hits zero, you can keep spending (and go into minus figures), with attract charged on the minus amount.
A company bank overdraft works in the same way, it’s linked to your business bank account, and the amount of attraction you pay will depend on how your business fund is doing financially.
They can also be both secured and unsecured. As you’d expect, a secured overdraft is secured against something your business owns. For example, this could be your business fund premises or a business vehicle, and this could be repossessed if you can’t support paying back the overdraft. An unsecured overdraft has no such situation.
3. Business Grants
Business grants are free money. What’s not to love? As you’d think, there is a pretty big catch. There is hundreds of agreeing out there, but they all have different situations that want to be met.
Some are only proposed to businesses in a particular site, companies in specific sectors can only access some, and some require your business to do genuinely groundbreaking research and development.
There’s a lot of work involved finding a grant you can apply for and then going through the application process. So, ensure you set a reasonable amount of time aside if you want to pursue this route.
4. Invoice Finance
Our in-depth invoice finance guideline will tell you anything you need to know about invoice finance but, shortly, how it works here. As you can see, invoice finance opens the demand of your unpaid invoices, boosting your cash flow and stopping unreliable buyers from receiving in the way of your expansion ideas.
And, as you’d expect, you will pay something for this support. How much depends on which invoice finance organization you go with and how your business is doing. Simply speaking, the higher the value of the documents you submit, the lower the rate you’ll pay.
Because of how this model works, your finance company has a genuine interest in supporting your business’s success. Last, the more money you earn, the more money they can make from you. So many providers provide a very hands-on service that can include assigning you a personal account manager, visiting your business person, and offering an expert suggestion.
5. Community Schemes (CDFIs)
If you have never heard of a CDFI, that’s not too unexpected as they’re a pretty remote part of the UK’s financial landscape. CDFI is the short form for community development finance institutions, and, shortly, they are responsible lenders that provide finance and support.
To see what CDFI systems are available to your business fund, use the search option on the Finding Finance site. You need to enter the type of loan you’re looking for, the amount you need to borrow, and your postcode.
Crowdfunding has been going for a while, but its popularity has risen steadily over the past two decades, and it’s now a significant route for little businesses seeking funding. The essential plan of crowdfunding is pretty simple. Many people (the crowd) contribute small amounts of money, adding up to relatively large amounts of funding.
7. Business Cash Advance
Business cash advance, also called a merchant cash advance, only started in the UK many years ago but is becoming a frequently famous beginning of funding for SMEs. It’s urgent a business loan that you pay back via a percentage of your card sales. As part of the application system, you and the lender will agree on the amount you need to borrow, and you’ll know the fixed fee that will charge.
8. Asset Finance
Asset finance is a pretty broad option that covers lots of different types of lending, but it can break down into two options: Finance that supports you buy or lease assets like vehicles and industrial instruments.
Finance that unblocks the value of things owned by your organization. The first option includes things like hire purchase (where your repayments eventually lead to you owning the asset) and instruments leasing (where the lender buys the support and you pay to rent it off them).
9. Peer-to-Peer (P2P) Lending
P2P lending is a specialized form of crowdfunding, where many people pool their resources and provide loans to people and organizations that want them. P2P lending sites like Funding Circle control the process, collecting money from investors and assessing companies that submit for loans to see who they should lend to and what rates they should offer.
The system is very similar to applying for a standard business loan from a business fund perspective. The big difference is that you can be accepted (and get funding) much more quickly and that the money you receive comes from ordinary people rather than a bank.
10. Organic Growth/Bootstrapping
Bootstrapping avoids all the cost, pain, and distractions of finding angels or VCs and allows you to keep control and all your hard-earned equity for yourself. Despite all the focus on external investors, over 90% of startups today are self-funded.
They were bootstrapping when they attempted to found and build a company from personal finances or the operating revenues of the new company.
What Is a Source of Funding?
Funding is Bootstrapping describes when an entrepreneur starts a company with little capital, relying on money other than outside investments. An individual is said to be the act of providing resources to finance a need, program, or project.
While this is usually in the form of money, it can also take effort or time from an organization or company. Sources of funding include credit, venture capital, donations, grants, savings, subsidies, and taxes.
What is a Business Fund?
“Fund company” is a commonly used term to describe an investment company, which is a corporation or trust engaged in the business of investing the pooled capital of investors in financial securities
What Are Two Sources of Business Fund?
There are ultimately just three main ways companies can raise capital: from net earnings from operations, borrowing, or issuing equity capital. Debt and equity capital are commonly obtained from external investors, and each comes with its own set of benefits and drawbacks for the firm.