It’s a good time to be a startup. Thanks to new online lending companies and a pledge from UK government to support small businesses, there are lots of funding options beyond your high street bank.
One of the key funding options from the government is their Start-up Loans scheme, which has already lent over £100 million in funding for startups, helping to support 20,000 new businesses so far. Realizing that the business experience of some startups may be limited, the scheme also pairs applicants with a Delivery Partner, who will help them put together a business plan. This support continues even after the application process, as those granted a loan are paired with a mentor to guide them as they start their business. As this is a government loan not a grant, loans must be paid back within 5 years.
Loans from not-for-profit lenders
An alternative source of funding is available through organisations dedicated to helping start-ups find capital. An example of this is Virgin Startup which, like Start Up Loans, also pairs mentoring with the loan application process. Businesses can apply for up to £25,000 in funding and will be matched with a business advisor, who can help them with their application and offer further guidance.
Crowdfunding is becoming an increasingly popular source of startup funds. If you’re not already familiar with it, it’s a way for businesses to get small amounts of money from many different people, as opposed to the more traditional route of getting large funds from one or two investors. By listing your request for funds on crowdfunding sites like Kickstarter or Indiegogo.com, hundreds of thousands of people can potentially view your proposal. So even if they only pledge £10 each, times that by 10,000 investors and you’ve got some substantial funds.
Crowdfunding isn’t catch-free capital. For reward-based crowdfunding systems like Kickstarter you have to offer something to your investors in return for their investment. This could be anything from tickets to your launch event, to sending them your product when it’s finished. If you go down the equity crowdfunding route, then investors are looking for unlisted shares or a small stake in your business in return for their pledge.
The first UK provider of revenue-based funding, Fleximize lets borrowers repay a percentage of sales each month until their loan is paid in full. So, SMEs only pay what they can afford – ideal for seasonal peaks and troughs in business. Take a look at Fleximize’s own revenue-based funding.
Peer-to-peer lending is another growth area in the loans sector. Here, like crowdfunding, a number of investors can invest via an online platform. One of the major players in this sector is Funding Circle, although there are many more offerings like Funding Tree and Zopa. The majority of these peer-to-peer lenders have online loan applications, so their websites are a great place to start when looking for startup funds. They often have loan calculators too, so you can set the loan amount and term to see what your monthly payments will look like.
Once you’ve applied to a peer-to-peer lender for startup funding, they’ll review your application and conduct any credit checks. You can find out if you’ve been successful in as little as 24 hours for some lenders. If your application is successful your loan will be posted on their site and investors can pledge what they’d like to invest. The funds will then be released and you’ll start monthly repayments.
If you're looking for growth funding, first think about whether you absolutely need to take out a loan. Perhaps you can use savings from within the business instead to take the pressure off. But at least, if you do got for additional funding, you'll have lots of choice.