Decision Management

Funding a Business Startup- Make A Decision

By Silver Hawak posted Mon July 05, 2021 07:06 AM

  

Family loans

This is a good option if you want to keep things simple. If you have a supportive family, with money to spare, they can be a good source for funding.

They are more likely to trust you compared to an outsider, and they will ask for lower interest and won't need many incentives than a commercial organization 

There are some downsides to this option because you are going to mix family and finance. You should weigh the pros and cons and see if it is the best option for you.

It is important to research thoroughly the finance model or provider before making any commitments. This way you can determine whether it is the best solution for your business.

Bank overdraft

A bank overdraft can provide quick and flexible cash flow for companies with fluctuating income. The idea behind this is simple: you're going to dip into the overdraft when the month isn’t going well and come back out when the business is picking up.

Most banks are going to charge you interest on the overdraft amount, but there are some that provide packages tailored for young businesses.

Find out whether your bank has overdrafts and how much you can get. Some banks give you up to 12 months where the interest is calculated on the borrowed amount, and there is no minimum amount you have to pay every month.

The rates on the overdrafts tend to be charged above the base rates, and the overdraft amount is going to be paid on demand.

Grants

There are many small business grants out there. The hard part for most people is finding them, and going through the application process, which tends to be long and arduous.

If your business manages to qualify for this, then they can provide you with the finances to get your idea off the ground or grow it. Find out more at USGrants.

Community schemes

There are many Community Development Finance Institutions (CDFIs) set up around the country that help businesses and individuals having a hard time getting access to or have been denied credit from lending companies or banks.

They provide businesses with everything from working capital to bridging loans and working capital for funding equipment and property purchases. They usually have restrictive terms: before getting access, you need to be either a social enterprise or a micro-business. You also have to be based in a disadvantaged area for you to qualify for it.

Crowdfunding

In the business world, crowdfunding is seen as an extension of the charity sponsorship page. People come together and pool their money towards an idea or venture – It could be 10 people putting a grand, or 5,000 people putting up two pounds. 

Investors or donors on crowdfunding sites such as Crowcube or Kickstarter are private individuals giving you small sums, which means they aren’t going to grill and put you through rigorous conditions as angel investors do.

A crowdfunding site can be good for your business because it can help you scope out the popularity of a given idea, and also get word-of-mouth marketing started.

Business cash advance

Companies like Liberis and Worldpay, allow businesses to get money upfront before their invoices and debts have been paid.

Under the terms of the agreement, if you use a card payment machine, the financer is going to buy a given percentage of the future debit/credit card transaction at a discount. The money is going to be advanced to your account. The repayment of the debt is going to be a pre-agreed percentage of every transaction – this can range from 10% to 20%.

A cash advance can give you up to £300,000 and you don’t have to worry about a fixed monthly repayment or burden of collateral, you will only pay this advance when the customer pays you.

There are a rigorous set of conditions you have to meet: e.g., Liberis insists that the company must have been trading for four months or more, and you also must average £2,500 monthly in card takings, and the ability to process debit and credit card transactions.

Asset finance

These loans work the same way as mortgages. You are going to borrow against your possession, and if you fail to pay it back, the lender repossesses the asset. Some assets you can use as collateral for a loan include accounts receivable, property of premises, equipment, and inventory.

The interest rates for such loans tend to be punitive, but it can be useful for companies desperate for cash, or those that are backed by a valuable property but have not been able to make a major profit – like a plant hire specialist or hotel.

Peer-to-peer loans

Peer-to-peer exchange sites like Funding Circle or Zopa put you in touch with private lenders. It helps in creating a personal relationship between you and lenders – fostering patience and trust. There are some well-established companies in this space, and many of them have generous terms. Zopa has become a good option for most borrowers because of their personalized rates and they don’t affect your credit score. You also don’t have to pay early repayment fees.

Organic growth/ Bootstrapping

Are you looking to start a consultancy from home? Can you code or design a website yourself? There are many successful businesses that have been started with little to no cash.

This type of funding is good if the product or service you are offering requires payment before delivering the goods. When you are paid, the profit is going to be put back into growing your business. This is option is simple because you put more money into it when you make a profit and don’t have to worry about paying back a loan.

This is a method that has the least risk when starting a business. It might not be the quickest method to start a company, but there is nothing to stop you from getting there.

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