What are the best sources of finance for a start-up?

Growing your business can be difficult, and difficult to fund out of your own pocket. Seeking external funding will provide huge opportunities for growth, not only through the obvious financial gains but also through networking and connections.

Business Loans

As with most financial concerns, the best place to begin is your bank. If you have a business account, the bank can help you by building a tailored approach to meet your requirements, providing you with a range of choices.

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One of these choices may be an unsecured business loan, the easiest loan to arrange. It’s suitable for long-term plans, although it can include significant interest rates. The amount you can borrow will also vary depending on your financial status.

On the flip side, secured business loans use your business’ assets as security. This can help with increasing the amount that you can borrow. It functions similarly to a director guarantee, where mortgage borrowers are liable for debt through their assets, which can be repossessed. It’s down to personal preference with these two.

Family and Friends

Borrowing from friends and family can be the safest and riskiest source simultaneously. You can borrow money from the previously listed options on top of this, and pay it back when you’re ready, but this could also cause disputes depending on how long it goes on.

It’s important that everyone involved fully understands the processes, as otherwise, you could risk damaging close relationships. Drawing up a formal contract with an independent solicitor such as https://www.parachutelaw.co.uk/director-guarantee can help to mitigate these risks.

Government-Supported Borrowing

The UK government can actually give help to start-ups, with a range of grants available for small businesses. These are mostly for specialised areas, such as research and development, but are worth looking into. More information is available on the government website here.

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External and Alternate Investment

Offering incentives can draw higher investments, such as offering shares of your company to a third party. This is an effective strategy and doesn’t necessarily require paying money back, but can be a slippery slope if you’re not careful.

Crowdfunding is one of the newest and most promising sources of finance. This is where you receive lots of small sums from multiple online investors in exchange for rewards such as discounts or equity. Its popularity is the only drawback, potentially making it difficult to draw investment towards your business.