A guide to get going in business. Financing options explained.

By Hayley Hemmings

Are you itching to bring your business idea to fruition, yet unsure about what your financing options are?

More than 380K start-ups have already been registered this year, according to StartUp Britain. It’s a pretty high number considering that starting a business can be a daunting process!

You’ve got to fine tune your business idea, get a sound business plan in place, familiarise yourself with legal implications and then figure out how you’ll finance your business. Oh – and have nerves of steel.

Getting your head around the various financing options alone is often confusing – but don’t let this deter you, as there are plenty of ways to overcome this hurdle. Including borrowing money, finding investors or just simply working with the cash you’ve already scraped together.

Take a look at some of these popular and creative ways to finance a start up business below:

1. Bootstrapping

This is where you start your business using any money you’ve got saved, without borrowing. When your business starts to make money and you have a good cashflow, you can then invest money into the business to develop growth.

The plus side to this method is that you’re using your own cash and the business is all yours – however, if your cashflow is limited, it could take a long time before you see any growth.

Here’s how to bootstrap your business all the way to the top!

2. Go cap in hand to the bank

Grovelling to the bank manager to fund your start-up is in fact a good option if you have a great credit rating and a decent business plan.

Many banks offer unsecured and secured business loans and the good news is that interest rates are often low. Read these secrets on how to bag a business bank loan.

Borrowing capital offers the benefit of being able to do more with your business early on in the process, but it’s a bit riskier than just using your own cash.

If you fail to make your payments on time, you could damage your credit rating, which may affect your business financing if you need to get another loan later down the line. And if you mess up a secured loan, your lender could force you to sell your business to get their money back.

Making sure your business cash flow is managed properly is key to keeping your business afloat and your creditors happy. Take a look at this article for some good tips to get started!

3. Join forces with an investor or business partner

Two heads are often better than one as the saying goes – and for many, it does ring true for business.

You might be able to find a private investor or like minded business partner who is prepared to stump up some of the cash to get you set up in business.

There are pros and cons to consider with this option! One plus is that you could benefit from working together on business strategies, but a couple of downsides are that you won’t be able to make key decisions on your own – or take profits just for yourself. Sharing is all part of the deal - the business won’t be wholly yours.

4. Government support

If you struggle to get a business bank loan, you could turn to the government for a little help. They offer government-backed bank loans from £500 to £25K at a fixed rate of interest (6%) per year.

Going down this route means you’ll get support to write your business plan and free mentoring for 12 months if you’re successful in getting a loan with them. Nice!

It’s also worth looking to see if you can get a government grant to give your business the boost it needs. Business grants for eligible SMEs can be anywhere between £1K and £100K - and you don’t have to pay the money back – find out all about them here.

5. Equity crowdfunding

Love craft beer? Then you’ll have heard of BrewDog. They propelled their business from a two man game to global status through equity crowdfunding.

This is where a number of individual people can invest in an opportunity by exchanging money for a share or stake in a business (or in BrewDog’s case, discounts in BrewDog’s bars amongst other incentives).

Whilst equity crowdfunding for start-ups can be seen as risky for investors, it’s fast becoming the go-to choice for entrepreneurs looking for alternative ways to raise start-up funds. It’s not a loan, so in the event that your business did fail, you wouldn’t need to repay anything.

This type of business financing has grown by 300% in the last 2 years. Crowdcube is one of the UK’s first investment crowdfunding sites and they alone have raised more than £230 million for over 500 businesses since the company’s inception!

6. Credit card stacking

Another option is to use the available balance on your personal credit card(s) in order to fund the amount of total credit you need.

This can be a good way of borrowing money for your business, if you only need a smallish loan for example. Getting a credit card can be a quick and easy way of borrowing, as you can simply apply for one online, providing your credit rating is in good shape.

You may be able to borrow on a number of credit cards to generate the amount that you need, but be mindful of how much the borrowing will cost you. You’ll need to ensure that you can make your minimum payments and this can be an added pressure if you’re trying to get your business up and running and generate cashflow.

Take a look at some benefits of using plastic to grow your business here.

Borrowing on credit cards is effectively unsecured borrowing, which means that if your business doesn’t work out, you’ll still need to pay back the debt, but at least you won’t lose your house or other assets.

Top Takeaway

Behind every great business is a solid plan – the foundation upon which you can build your business. It’s important to get your plan right before you approach the government, the bank or private investors.

Check out this article for tips on what to include in your business plan. And when you’re ready to explore financing options:

- Know your numbers – make sure you’ve clearly calculated how much money you’ll need to start your business and how much your turnover and profit is expected to be in the first 3 to 5 years.

- Start with applying for the lowest risk (to yourself) financing option.

- When you’ve secured business financing, protect your business by making your repayments on time every month.


What are your thoughts on starting your own business?

Author Bio: Hayley Hemmings is a freelance writer and blogger from Yorkshire. She’s passionate about money matters, frugal living and loves anything handmade. When Hayley’s not writing, she’s most likely to be found enjoying snuggles with her little girl or walking her border collie through the beautiful Yorkshire countryside.  

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