So, you’ve decided to do what few people have the courage or prowess to do: create your own startup.

You’ve come up with the business idea, laid the groundwork and worked out the financials. Now you just need the money to fund your venture — which is where many entrepreneurs hit a roadblock.

But there is a large variety of fundraising options for startups looking to fund their venture. In this article, we cover the most popular sources of business finance and discuss some of the pros and cons of each along the way.

‘Traditional’ startup business finance

Let’s begin with the more ‘traditional’ sources of finance new businesses can use to get started.

Startup business loans

Startup business loans will probably be your first port of call for funding. These loans are aimed specifically at new businesses with little in the way of credit history, assets or trading history — the type of things a new business will probably lack.

However, lenders will still want to see business plans and financial forecasts that give a clear picture of how their money will help the business. After all, the money is coming from their own balance sheet!

Government startup loans

Some lenders take part in the Government startup loan scheme, which is safer for them to do because the amount of money they lend is backed by the Government. That has its advantages and disadvantages.

Advantages:

• No collateral required
• Repayment of loans capped at five years
• Interest rates are fixed at 6% per year

Disadvantages:

• Only worth between £500 and £25,000, averaging out to £9,295 (of course, if this is enough for you, that’s hardly a disadvantage!)

Business partners can apply for up to £25,000 with a maximum of £100,000 available per business.

In addition to finance, successful applicants receive 12 months of free mentoring and exclusive business offers to help them succeed — a great addition that you don’t get with non-government schemes.

Business credit card

When managed properly, a business credit card can offer a flexible way of borrowing to fund your startup — particularly for adhoc equipment, the cost of which is easier to stay on top of.

Business credit cards are very similar to personal credit cards but if your business doesn’t have a credit history, some lenders will base their decision on your personal credit or ask for a personal guarantee.

Alternative sources of finance

When starting a business, every penny helps. Have you considered these other sources of finance?

Angel investment

An angel investor is a high-net worth individual who invests their money in a small company in exchange for a minority stake (usually between 10% and 25%).

However, angel investment is about more than just money, as investors often offer mentoring, support and business contacts. After all, they tend to have a greater stake — and therefore interest — in the startup.

If you want to learn more about angel investments and whether they’re right for you, visit the British Business Bank.

Crowdfunding

The rise in popularity of crowdfunding in recent years means that it is now a fully-fledged financing option, rather than just an alternative to explore.

Crowdfunding can take various forms, but the main premise is to persuade a number of smaller investors to put forward a small investment that will collectively raise the funds your business needs — usually in exchange for a small stake in the business.

Venture capital

Venture capital shares some similarities with angel investment but is generally on a much bigger scale.

Instead of an individual investor, venture capital usually involves an entire firm, run by professional investors, taking a stake in your business.

As a result, investment amounts tend to be larger. Be aware, though, that investors might also want a greater say in how your business is run.

Need help securing finance?

Securing startup finance is tough: not only do you need to identify which source and method is right for you, but you need to make sure your application is airtight.

We can help with both of these challenges.

So, get in touch with us to discuss your financing options in more detail. Alternatively, read about how we can help you with your application, including your financial modelling and corporate financial planning.

Talk to us about your startup.