Posted: Tue 28th Jan 2020
A lack of funding is one of the biggest barriers to getting your start-up idea off the ground. But that doesn't have to be the case.
Whether you want to start or grow a business in 2020, there are a wealth of funding options available. This blog post lists the key sources of funding and how they work, so you can figure out what's right for your business.
Reward-based crowdfunding sites like Kickstarter and Indiegogo do what they say on the tin; businesses offer rewards in exchange for funding. There are usually tiers of rewards, depending on how much money someone contributes.
Product-based businesses tend to do well with reward crowdfunding because there's an obvious perk; if someone loves the thing you want to create they can help you do it and receive a product when you're successful.
Kickstarter takes an all-or-nothing approach to funding. If a Kickstarter project doesn't reach its goal, you won't be expected to move forward and any backers won't be charged. Indiegogo is unusual for crowdfunding platforms in that it gives you the option to keep all your funds even when your campaign does not reach its goal.
Exploring the projects looking for funding is the best way to get an impression of whether your idea could work. You'll need to do lots of work to promote the campaign too, it's unusual to be able to rely on the platform to bring you all your backers.
It's important to plan how much money you need to get the product to market and fulfil the rewards you've promised. These platforms take a fee for from the amount you raise, so look into their terms and conditions.
If you opt for equity-based crowdfunding, there's the chance to raise large sums of money and give your customers an opportunity to own part of the business. These platforms charge fees, usually around 6% of the amount you raise, and you don't receive funding unless you reach your target.
Equity-crowdfunding platforms will help you find investors and these investors can turn into customers and brand advocates. However, the main platforms expect start-ups to reach a certain percentage of their funding target before making a raise public and you'll have to work hard to find your investors - a process that can take a lot of time and preparation.
For more information on equity-based crowdfunding you can access the following resources:
Video: Equity Crowdfunding: How to prepare for success, which includes how to choose the relevant platform and dealing with investors.
There are a number of charities that provide grants and other support, such as mentoring, to entrepreneurs.
The Design Council's Spark programme supports applicants with product development. Up to 10 finalists are selected for a 16-week programme of design workshops.
If accepted, you'll receive an initial sum of £15,000 to develop your product. You will also have the opportunity to pitch in front of an investment panel for a share of up to £150,000 to fast-track your product to market.
The charity works with 18 to 30-year-olds to help them turn their ideas into a business. Its programme includes workshops, support creating a business plan, coaching and small grants.
Borrowing money from friends and family is one of the most common ways to fund a start-up. After all, you're approaching people who are already on your side and backing you to succeed.
Regardless of the strength of your relationships, it's a good idea to draw up a loan agreement. You should set out any terms, such as when you will pay back the money, to prevent any confusion or bad feeling later on.
Make sure it's clear whether you're taking the money as a loan, investment or gift. Each has different expectations for the person giving you the money and different tax and paperwork implications; do your research carefully to make sure you fulfil your responsibilities.
The government offers grant funding for businesses starting up in specific industries or locations. There is also the chance to get funding to hire graduates or conduct research with partner institutions, such as universities. Find the latest list of opportunities here.
You can qualify for the New Enterprise Allowance scheme if you're over 18 and either you or your partner receive benefits (for example, Universal Credit or Jobseeker's Allowance).
The New Enterprise Allowance scheme will give you a mentor to help you get up and running. Once you've put a business plan in place, you can be eligible for weekly grants of up to £1,274 over 26 weeks.
Innovate UK is a public body funded by a grant-in-aid from the UK government. It supports businesses with research and development projects.
Gov.uk lists Innovate UK's grants, which range from projects that reduce emissions from food production to commercialising quantum technology.
Start Up Loans is a government-backed scheme that helps people start or grow businesses. Applicants can get a loan of up to £25,000, free mentoring and a one to five-year repayment term.
To apply, you will need to be starting a new business or trading for less than two years. Check the rest of the eligibility criteria here. Start Up Loans provides personal loans, which means you will be liable for repaying your loan even if your business plans change in the future.
There is usually a stringent approval process in place, so make sure you have a detailed copy of your business plan and proven market demand before you apply.
Funding Options is a comparison site that connects start-ups with business lenders. It can help to give you an overview of funding options across the whole market, from peer-to-peer loans to equipment leases and commercial mortgages.
If you're a student, look out for enterprise programmes run by your university. Many universities provide emerging entrepreneurs with the chance to develop skills, work with advisers and access funding through competitions.
Want help looking for funding? Use Enterprise Nation's adviser search to find an accountant that can help.