Best 9 Different Ways to Fund Your Business In 2021

As many startups will tell you, getting 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 look for alternative sources of funding to get their business going.

There are loads of options out there, from personal savings and family loans to grants and crowdfunding. Here’s are 10 ways to fund your business.

1. Savings/ Family Loans

Let’s get the obvious one out of the way first. If you do have cash sitting in a bank account, then using that should be the first thing you do. You might also use a redundancy payout or even sell a property to get your dream off the ground.

The other straightforward option is to ask family members or close friends for financial assistance. This can definitely work but it’s really really important to make sure that both parties know exactly what they’re agreeing to.

Making sure the terms are clear, and there’s a proper agreement that can be referred back to later is the key to making sure a family loan doesn’t lead to any painful scenes down the line (or even you being written out of the will).

So, approach family loans the same way you’d approach any other investment. Be clear about how much money you need, what it would be used for, what your business plan is, and how you plan to repay the loan.


2. Overdrafts

If you’ve ever had a bank account, then you probably know how an overdraft works. When your balance hits zero, you can keep spending (and go into minus figures), with interest charged on the minus amount.

A business bank overdraft works in the same way it’s linked to your business bank account and the amount of interest you pay will depend on how your business is doing financially. They can also be either secured or unsecured.

A secured overdraft is, as you’d expect, secured against something your business owns. This could be your business premises or a business vehicle for example and this could be repossessed if you can’t afford to pay back the overdraft. An unsecured overdraft has no such conditions.


3. Business Grants

Business grants are basically free money what’s not to love? As you’d imagine, there is a pretty big catch. There are hundreds of grants out there, but they all have different conditions that need to be met.

Some are only offered to businesses in a particular area, some can only be accessed by businesses in particular sectors, and some require your business to be doing truly groundbreaking stuff in terms of research and development. There’s a lot of work involved in finding a grant you can apply for and then going through the application process. So, make sure you set a good amount of time aside if you want to pursue this route.


4. Invoice Finance

Our in-depth invoice finance guide will tell you everything you need to know about invoice finance but, in a nutshell, here’s how it works. As you can see, invoice finance unlocks the value of your unpaid invoices, boosting your cash flow and stopping unreliable clients from getting in the way of your expansion plans. And, as you’d expect, you’ll pay something for this service.

How much depends on which invoice finance company you go with and how your business is doing generally speaking, the higher the value of the invoices you submit, the lower the rate you’ll pay.

Because of the way this model works, your finance company has a real interest in helping your business succeed. After all, the more money you make, the more money they can make from you, so many providers give a very hands-on service that can include assigning you a personal account manager, visiting your business in person, and offering expert advice.


5. Community Schemes (CDFIs)

If you’ve never heard of a CDFI, that’s not too surprising as they’re a pretty hidden part of the UK’s financial landscape. CDFI stands for community development finance institutions and, in short, they are responsible lenders that both provide finance and support to the businesses they lend to.

To see what CDFI options are available to your business, use the search option on the Finding Finance website. You just need to enter the type of loan you’re looking for, the amount you need to borrow, and your postcode.


6. Crowdfunding

Crowdfunding has been going for a while but its popularity has risen steadily over the past two decades and it’s now a really important route for small businesses seeking fund your business.

The essential idea of crowdfunding is pretty simple. Lots of people (the crowd) contribute small amounts of money, which can then add up to pretty large amounts of fund your business.


7. Business Cash Advance

Business cash advance also called merchant cash advance only launched in the UK a few years ago but is becoming an increasingly popular source of fund your business for SMEs. It’s essentially a business loan that you pay back through a percentage of your card sales. As part of the application process, you and the lender will agree on the amount you want to borrow, and you’ll know the fixed fee that will be charged.


8. Asset Finance

Asset finance is a pretty broad category that covers lots of different types of lending but it can basically be broken down into two categories:

  • Finance that helps you buy or lease assets like vehicles and industrial equipment
  • Finance that unlocks the value of things owned by your busines.
  • The first category includes things like hire purchase (where your repayments eventually lead to you owning the asset) and equipment leasing (where the lender buys the asset and you simply pay to rent it off them).


9. Peer-to-Peer (P2P) Lending

P2P lending is basically a specialized form of crowd fund your business, where lots of people pool their resources and give loans to people and businesses that need them. P2P lending sites like Funding Circle manage the whole process, collecting money from investors and assessing businesses that apply for loans to see who they should lend to and what rates they should offer.

From a business perspective, the process is very similar to applying for a standard business loan with the big difference being that you can be accepted (and get  fund your business) much more quickly and that the money you receive ultimately comes from ordinary people rather than a bank.