The Best Ways to Fund a New Business in 2017

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The Best Ways to Fund a New Business in 2017

A recent study carried out by Moneywise showed that the average amount needed to start a small business in the UK was £27,520, with Manchester being the most expensive (£44,733) and Newcastle the least expensive (£17,008). The amounts quoted are considerably high for one or two individuals which is why it is no surprise that many people look for other ways to fund their new venture. We have researched some of the best ways to finance a new company in 2017.

Family and Friends

Borrowing money from family and friends is the most common way to kick start a new business. Several major companies have succeeded on this basis including Facebook, which started from a loan from Mark Zuckerberg’s friend, Eduardo Saverin and Nandos, which began with a loan from the owner’s father.

Money from your parents or siblings is usually interest-free and they may not even requirement repayment or equity in the business, they will just want to see you succeed. However, some families may require some terms and conditions on the loan to encourage you to work hard and pay back.

Family members are more inclined to trust you and support you than a random third party investor or bank. You also may get better access to finance and quicker from family and friends than mainstream lenders.

Crowdfunding

In the year 2017, if you have a business idea that is so innovative, it will likely gain the support of potential customers and investors. Using websites like Kickstarter, Seedrs and Indiegogo, you can present your business idea and how much you need to raise. If potential investors are interested, they can pledge money towards your investment goal and receive a small stake in the process.

For budding entrepreneurs, this can be a great way to build up some momentum for your product and getting the full funding you need without spending anything. Be sure to have some protection for your business like trademarking or patenting as your million-dollar idea could be at risk. Also, make sure that you can give your investors some freebies or samples to get them on board.

Government Grants

Government funding can offer free or low interest loans for new businesses and start-ups. If your company is something that can help mankind, you may be eligible for free finance from the likes of Innovate UK for projects relating to manufacturing, materials and health and also grants like UK Trade and Investment for export businesses. Government grants does not just mean financial capital but also mentoring, vouchers and office space.

A great example of a Government initiative is The Prince’s Trust, which allows young business people aged 18 to 30 to borrow up to £5,000 for just 6% APR over one to three years.

Mainstream Finance

One of the most traditional methods of funding a new business is from a simple bank loan. Those already a member of a bank may receive preferential rates to borrow over £25,000 (Barclays, charged at 4.9% APR) and up to £35,000 (HSBC, charged at 3.3% APR) depending on their business and credit score.

For those with less than perfect credit scores, there are options to secure the loan on your home property or business premises in form of a secured loan or bridging finance, ranging from 3% to 99% APR.

In the event that your parents do not have the money to invest upfront, they can always help you get access to mainstream finance by acting as you guarantor. This means that they co-sign the loan agreement and will help your cover the repayment costs if you cannot afford them, with no upfront investment needed. Applicants can borrow up to £15,000 at rates of around 49.9% APR (Source: Guarantor Loan Comparison).

 

On 17th and 18th May, The Great British Business Show will be exhibiting numerous companies that can assist with finance for new business including Funding Circle, Start Up Loans and Alternative Business Funding.

 

Daniel Tannenbaum

Tudor Lodge Consultants