You have the idea, the motivation and the tools to get your startup off the ground. There is only one thing lacking – the finance. Depending on what your idea is, the amount of capital you will require can vary. However, every startup requires some capital, even if you aim to continue your day job whilst setting up your company. The question on every entrepreneur’s mind is how to go about raising this capital. This article explores a few possibilities you may want to consider.
The traditional method. Meet the bank manager to see if they will approve your loan. As we all know in the current economic climate loans to small businesses can be few and far between, despite various initiatives by the government to kick start the loans. The process of applying for a loan can be lengthy and of course you have will have to pay the loan back, plus interest. However, with the current low interest rates, now can be a good time to take out that loan, if you are lucky enough to get it approved.
Local Authority Funding
Local authorities offer a variety of different funds. Some FTSE 100 companies have only set up shop in a certain location due to the grants provided to them by the local authorities. However, these loans often bring with them a very long and bureaucratic application process. Other downsides can include specific stipulations in setting up the company. On the plus side, some of these funds are grants which do not need to be paid back, or loans with very favourable rates, making this method of financing a startup more attractive than a traditional bank loan.
There are various investor groups who are put together with the aim of investing in companies, along with individuals who have the same aim. One of the obvious advantages includes not having to pay back the capital. However, this is often in exchange for a share of the company. As one of the main motivations for setting up your own company can be a desire to have complete control, giving away a chunk of the company may not be an option for some. There are other alternatives, for example the website kickstarter.com. Kickstarter is a platform where budding entrepreneurs can advertise their ideas. Members of the public can fund you, and in return receive something back. For some projects you can invest as little as a dollar in exchange for a cut down version of the final project. Not only does this allow you to raise capital, you can also see how much interest your idea garners.
These days, successful entrepreneurs are chomping at the bit to help finance young startups. However, many of these grants often come with certain conditions. The Thiel Fellowship, set up by Peter Thiel of PayPal fame, picks 20 young (under 20) entrepreneurs each year and awards them with $100,000 to focus on getting their idea off the ground. There is a catch, they cannot attend university for the two years that their grant lasts for. Clearly, this is a fund for a very particular, and young, type of person.
Deciding on the type of funding that is right for your business is not an easy task. When setting up your business you should look into every possible avenue and explore the strengths and weaknesses before making your decision. You should also consider very carefully how much funding your business requires to make sure that you are not restricted by your lack of capital, or that you have too much, and base decisions upon this fact only.
Wellmeadow has a keen interest in startups. If you are looking to set up your own company and need some advice, contact us for an informal chat. You can email us, or call on 01743 234031.