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Beyond Business Loans: Alternative Ways to Finance a Startup

Not all entrepreneurs can access funding via small business loans. However, there are a variety of ways to raise funds for your startup.

If you are thinking of starting a new business, your first port of call might be securing funding with your local bank with a dedicated business loan. There is nothing wrong with this route – it is a common and favorable capital source that has been used by entrepreneurs for many years.

However, not all entrepreneurs can access funding via a small business loan since the application process can be complex to navigate. When you consider that there are a variety of ways to raise funds for your startup, there is no reason to rely solely on banks and lenders.

You might be surprised at the range of financing options available to entrepreneurs with newly formed companies. Here, we take a closer look at some of these alternative funding ideas.


Attract like-minded investors

One interesting idea could be finding and working with like-minded people in your industry. Finding a like-minded investor who shares your vision enough to offer you funds during those first rounds of financing is, after all, every entrepreneur’s dream.

Before an investor meeting it’s important to be prepared. Be sure to ask the right questions to attract the best potential investor, pique their interest and encourage them to part with their cash. Although you might not be entering the proverbial Dragon’s Den or Shark Tank, you will want to win their trust. An investor-funded route to raising funds does mark the beginning of a unique business arrangement which warrants some well-considered forward planning.

For example, if you have an eco-friendly business idea, it could be worth presenting it to established companies. They might be interested in working on the project with you. An additional advantage to securing an interested investor is not only getting some of the funding for the company, but also finding established business partners.


Tap into personal funds

It might seem obvious, but the first thing to ask yourself is whether or not your idea actually needs funding at all. Getting a small business off the ground doesn’t necessarily have to have a lot of upfront capital spent. Indeed, many startups that begin as a one-man are simply able to self-fund for a couple of months before the business starts to take in money.

This kind of approach won’t be for everyone, but if it is possible, it really does have many benefits. Without having any other parties involved you are answerable to no-one, and better yet, you own 100% of the business that you are putting all of your hard work and effort into. That means you are the one who will see the reward on its success.

Naturally, many businesses do require some starting capital whether it is to invest in staff, equipment, or anything else. Nevertheless, for those businesses that can work on shoestring initially, starting small can be extremely advantageous.


Explore tax relief

You might be surprised to learn that it is often possible to claim tax relief if your work involves any kind of innovation. Getting this kind of tax relief can actually go towards a huge part of the funding of your business.

“R&D tax relief is still massively under-claimed by businesses,” says Simon Bulteel of Cooden Tax Consulting. “That’s predominantly because most accountants don’t understand it and aren’t proactive in talking to their clients about it. The average claim for a small business is around £50,000, but perhaps a more realistic target for a small business is the median claim of just under £20,000, but it really depends how much money you’ve spent.”


Sell shares

It could be the case that you are looking for legitimate investors in your business. In this scenario, it could be advisable to sell shares. If you are considering this route, it is definitely worth investigating becoming a Seed Enterprise Investment Scheme (SEIS) business. The SEIS offers tax efficient benefits to investors in return for investment in small and early-stage startup businesses in the UK.

It is designed to boost UK economic growth by promoting entrepreneurship and to make it easy for companies to seek investment.

“Entrepreneurs are often ‘selling’ their shares to investors so it is crucial that these shares are made as attractive as possible,” the Jonathan Lea Network explains the benefits “experienced investors are provided with lower risks when investing in newer companies along with a series of benefits that are sure to make a company’s shares far more desirable.”


Apply for grants

Depending on the type of business that you are looking to start, it may be that there are grants available. Many organizations are interested in funding new enterprises and helping get businesses off the ground, so this could definitely be a good idea if you are in an industry that can help with grants.

Don’t assume that all available grants come from central governments. Many programs are put in place by local government, charities, and industry trade organizations who desire to stimulate the business ecosystem in their communities.


Consider crowdfunding

Another option to consider might be crowdfunding. Instead of getting one loan from a single lender or one lump sum payment from an investor, this allows many people to contribute small amounts that add up to a fund large enough to support the idea. In some cases, investors will be putting up money in return for a portion of the company – in others they will simply be investing because they like the idea of the business, and won’t expect anything in return.

However, it is important to be very careful if you are considering crowdfunding as an option for your startup. Jessie Day of Simply Business explains a key peril: “The harsh reality of crowdfunding is that you’ve set very public expectations, and failing to meet them or missing promised timescales will frustrate people, turn them off to the product, and put you in the firing line for bad publicity.”

“A good tactic here is to be really upfront, stay connected with your audience and share your journey with them. They’ll be much more forgiving if they’re up-to-date with your challenges, and excited for a product that’ll be worth it in the end.”


Family and friends

It is true that many entrepreneurs do still rely on the bank of mum and dad. Of course, not everyone has relatives with the kind of capital needed to fund business ideas – but if you can get help from family and friends with your idea, this can be one of the most favourable ways to get money.

Similarly to self-funding, working with friends and family often means far more flexible and forgiving approaches to getting money back. While it isn’t on the table for everyone, if it is possible in your situation, it should not be overlooked.


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