One of the key funding options from the government is their Start Up Loans scheme, which has lent over £600 million in funding for startups, helping to support 75,000 new businesses so far. Realising 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 business 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.
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. 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.
Another type of funding to look into is angel investment. Angel investors will invest privately in exchange for equity. They're usually well-connected and high-net-worth individuals, but could also be friends and family. The amount invested could vary significantly, depending on how much the investor is willing to part with and the business proposition.
Once your startup has been running for 6 months or so, you'll find that there are many more funding options available to you. For example, many alternative finance providers, such as Fleximize, offer a funding product specifically designed for businesses in the early-stage growth phase. Businesses can borrow between £5,000 to £500,000 over a term of 3 to 12 months with flexible features built into the product, such as repayment holidays and no early repayment fees. You can find out more here.