An Introduction To Business Funding For New Entrepreneurs

Money is a vital part of any startup business. Getting funding can be tricky, but there are numerous ways and opportunities out there to obtain the money you need for your business. This post will give you a good overview of the forms of funding available to all you budding entrepreneurs.
Step 1 – Write a Good Business Plan
The key to securing quality funding from reputable sources (banks and business angels for example) is to have a detailed and well-written business plan. If potential investors can see that you have a well thought-out plan and you’ve considered all the risks and how you’ll deal with them, they will be more willing to lend you money. Give detailed information of what direction the business is looking to go in and what the potential returns are for prospective investors. The UK government gives more details on how to write a good business plan here.
Step 2 – Get Funded
Bank Loans
One of the most common methods of gaining startup capital for your small business is to ask for a bank loan.
To get a loan from your bank you will have to show them your business plan with realistic cash flow forecasts. The bank will be reluctant to grant you money if you can’t persuade them you’ll be able to repay it, plus interest.
Be sure to weigh the risks up against the potential gains. Banks may ask for security on your loan to ensure that you pay the money back. This could be your car or even your house, so it’s not something to rush into. Are you sure your business is going to be a success, and are you willing to lose your car or home if you’re wrong? A bank loan can be a fairly risky avenue to go down when looking for business funding, but the interest rate is typically lower than a non-bank lender so it is an avenue worth exploring.
One big advantage of this option is that, unlike many other forms of funding, you will not have to give the bank a share of your company or any amount of your profits. You alone keep sole ownership of your business.
Grants
A grant is money given to a business for a specific project or purpose, and you won’t ever have to pay it back. Getting a grant is a big deal!
Grants can be given by various organisations; some of these include the European Commission, the government, regional development agencies and some selected charities.
The money will only be given if the organisation can see that your business plan complies with the conditions of the grant. The Small Firms Merit Award for Research and Technology (SMART) is given to businesses to participate in research & development in the areas of science, engineering and technology for example, but there are plenty of others out there so do your research and see what you might be able to get.
Grants can be tough to obtain, and involve lots of lengthy forms, but the potential advantages from a grant are worth the slog!
Business Angels
A ‘business angel’ is an affluent individual who will look to provide your startup with funding, typically in exchange for some ownership equity or convertible debt.
Business angels are successful entrepreneurs, which is the major advantage of this opportunity of funding. They do not only provide a cash injection to the business but also bring with them a wealth of knowledge of the business world. Since they’re taking a risk investing their hard-earned cash in your idea, they’ll want you to succeed, so will likely want to offer advice. However be sure to discuss who will make the final decisions when you disagree (typically the main shareholder – you) in case they try to control your business more than you are comfortable with.
Friends and Family
If you’ve got a bad credit history, or just prefer not to get ‘outsiders’ involved in your business, you might want to ask friends or family who have some money if they’d be happy to invest, or even donate.
But there is a catch! Many families and friendships have been destroyed over money troubles – how would your parents or friends take it if they invested money, your business failed and you had to tell them you couldn’t pay them back? A good idea is to have a written contingency plan between the two parties, clearly detailing what will happen should the business fail (e.g. you will pay £X back per week/month).
For a more comprehensive guide to business funding and to find out what other options are available to you, take a look at Thomson Local’s business funding guide.

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Author Bio: Estelle Page has a wealth of experience in the business field; she is a self-employed interior designer who built her business from scratch. 
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