start up funding

Whether you want to start up a business alone, or buy a franchise so you can run your own business, most of us require some funding to get our ideas off the ground.

Some people are able to use ‘bootstrapping’ – they have the necessary funds in savings or investments to get their business started or buy a franchise. Others may look to the banks for a loan, approach family members for support, or try peer-to-peer lending (P2P). Many entrepreneurs are turning to crowdfunding to start their business ventures, including franchises, which can help create a customer base through the donor network.

Another way to raise funds could be through angel investors or venture capitalists – either individuals investing their own money or firms investing other people’s money in your business. Alternatively there is the Government’s Start-Up Loan scheme, a personal loan of between £500 and £25,000 for people without access to other forms of start up capital. These loans are designed to finance the initial costs of starting up and developing a business, and can be used for buying a franchise business.

With it becoming harder to secure funding using the traditional route of a bank loan, and many people not in a position to tap their friends and family for funds, we explore below the other options at your disposal.

5 Ways To Fund Your Start Up Business

#1: Bootstrapping

Perhaps the easiest way to get your business started or buy a franchise is to use your own personal capital. For many this comes from savings or investments and it means that instead of spending significant time and energy fundraising, you can get started straightaway.

Without any external influencers – such as an external investor wanting to shape your business – or the pressure of paying back a loan, you’re free to get on with developing your business as you want. It’s a sustainable approach and profits are yours to plough back into the business or spend as you see fit.

However it can be lonely at the top without interested parties or access to additional capital. Being accountable only to yourself could result in some poor decision making, and you may not have the support or resources needed to really grow your business.

It is important that you look for ways to get that support – which often comes with investment from a 3rd party or business partner – by either budgeting for a business coach or mentor, or joining a business support network like Your Business Hub.

#2: Crowdfunding

I like the concept of crowdfunding your business start up as it is an effective way of road testing your business and building a customer base before you even open for business. For those that don’t know how it works, you specify a total amount you want to raise and ask for donations from people in exchange for a comparable service, product or shares. Equity-based crowdfunding is not appropriate for franchise opportunities, however providing a service or product instead is very feasible. For example, a food business might offer a free meal or a years worth of coffee, depending on the donor’s pledge. If you wanted to crowdfund the purchase of a Business Hub franchise for your area, you could reward donors with free membership or a one-on-one coaching session.

The beauty of crowdfunding is that donors really do vote with their feet. You can see how much demand there is for your business by the number of donors and the level of their pledges. Those donors could also become your future customers; this is an opportunity to start nurturing them ready for when the business officially opens.

One think to bear in mind is that if you don’t reach your target amount, no pledges are taken. Therefore it’s important to be realistic about how much money you need and can expect to raise in this way.

#3: Peer-to-Peer Lending (P2P)

Peer-to-Peer Lending works by pairing lenders with borrowers through an intermediary – websites like Funding Circle, Zopa and Ratesetter. The idea is that both parties get a better rate than borrowing or investing with a bank – lenders get a better interest rate than savings accounts, borrowers get a lower interest rate than they would on a conventional business loan.

Borrowers are risk weighted depending on their credit score and a fee is payable to the P2P platform.

#4: Start-Up Loan

The Government backed Start-Up Loan scheme is available for anyone with a viable business idea – or who wants to buy a proven franchise. Applicants are assessed on the basis of their business plan and cashflow forecast and as well as the loan, successful applicants also receive a business mentor, support and access to free training events.

Start-Up Loans are available through delivery partners like Transmit Start-Ups. Here at Your Business Hub we have franchise owners who have successfully applied through Transmit Start-Ups to get funding for their local Business Hub. We have also partnered with Transmit Start-Ups to help UK entrepreneurs access this funding, for any eligible business.

#5: Angel investors and Venture Capitalists

Generally start ups do not attract money from venture capitalists – they tend to be more focused on investing large sums of money (£1 million +) in established businesses. Whereas angel investors are more likely to provide the seed funding for start ups looking for investment up to £1 million.

Angel investors invest their own money in your business in exchange for shares, and will often fulfil a business mentoring role sharing their experience and skills to help you make your business a success. Angel investors don’t necessarily walk around with a business card saying ‘Angel Investor’! As well as people actively looking for opportunities to invest in small businesses, they could equally be a family member or friend with money available to invest.

This is not an exhaustive list of funding available, there are other avenues too. However, for start up funding for relatively small sums these are all viable ways of going about it.

Have you secured funding for your business? Share how you did it with our business community below.

Your Business Hub has partnered with Transmit Start-Ups to help more entrepreneurs access a Start-Up Loan. You can use it for any eligible business under 24 months old, or to buy a franchise business like a local Business Hub. For more details, click here.

Start your own business hub

Photo by Olu Eletu on Unsplash

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