Starting a business can be a daunting task, but there are a number of funding options available to help get your business off the ground. In this article by Carolyn Clayton, we’ll explore the different types of business funding available and how to access them.
Are you after funding for you new business venture? Maybe you even went on the television program Dragons Den but left without funding? If you have been on Dragons Den and were turned down funding you need to ask yourself why. What did the dragons tell you? You shouldn’t ignore their advice, if they said your business was a stupid idea and it would never make money, believe them and move on. So many people leave the den thinking they know better and carry on their dream but spend years wasting time on a business that will never succeed. However if the dragons liked the idea but just didn’t think it was investable because of the return on their investment wouldn’t be worth their while, you should still keep looking for the funding and keep your business dream alive.
Funding a business is a very important part of a new business startup up. There are plenty of options open to you; you just need to know what to look for. Most people turn to their bank first and try to get a bank loan. Bank loans can appear attractive as you don’t have to sacrifice any ownership of the business however their interest rates can be high and you might spend a long time paying the debt off. Plus with a bank loan you will have to pay it back even if the business fails.
Another option available to you is equity finance which is where you sell partial ownership in exchange for cash. This can be in the form of a business angel or a venture capitalist. With business angels you get the added advantage of advice and support from your investor. Angel investors tend to be very successful in their own right and have similar businesses to you. They often save struggling businesses from ruin and set them back on the right track.
Venture capitalists investors are another type of debt financing. Sometimes these types of investors become partners within the business and use their skill and experience to turn the business around or help it off the ground. Most of them take an active role but some simply provide the funds and let you run the business yourself. If the business succeeds they typically make a larger return on their investment than for instance interest rates on savings accounts. This is why venture capitalists’ look for businesses to invest their money in. Equity financing is far more expensive if your company is successful but far less if it fails.
Business grants are another option available to you and they could be just the type of funding your need. Grants are sums of money that are given to business and do not need to be paid back. However grants generally come with terms and conditions which must be met to ensure you don’t have to pay the grant back. The trouble with grants is that they are hard to come by. They are provided by central, regional and local government, the European Union, and a number of other national and local bodies. Most grants are given to limited companies, partnerships and sole traders. Unfortunately the location of your business will be crucial with regards to obtaining a grant.
Finding funding couldn’t be easier with the internet. There are lots of business angel companies which offer the chance to meet with investors. Some online sites have members’ areas where those looking for finance can post their business funding needs. Investors also can become members and look through all the investment opportunities and chose who and which company they wish to invest their money with.