However, for entrepreneurs with a viable idea or existing business venture it might not seem easy as small business loans are increasingly hard to come by and new entrepreneurs are often rejected. So what can new owners of SMEs do? Putting your business plan in place, you should explore the options for funding available to you. Here’s a guide from ‘Small Business’ to finding that funding.
1. The DIY approach
Otherwise known as ‘bootstrapping’, it is often the case that small businesses have to self-fund their entrepreneurial projects until other options become more readily available.
In most cases, traditional funding will be difficult to come by for start-ups until they can turn a solid profit. Investing your own money lets future investors know how serious you are about your business.
If you are thinking about starting or taking on an existing business you should already have some money set aside. However, there are also other things worth considering, such as savings accounts, zero interest credit cards and the leveraging of your other assets.
2. Friends and family
Friends and family are a very popular and effective funding option as they are more likely to believe in you, your vision and your abilities than an outsider. Naturally you are comfortable around your loved ones, so it can be tempting to over-borrow. Only borrow as much as you need to get your business off the ground and structure your loan repayments to avoid disputes.
The only downfall with this option is the mixing of personal life and business. If things turn sour you could be putting at risk personal relationships and it could end up costing you more in the long run. Make sure you consider the pitfalls and potential risk factors. The risk is high, but the returns can be too, so it’s up to you to weigh it up.
3. Angel investors
According to the UK Business Angels Association, angel investing is ‘the most significant source of investment in start-up and early stage businesses seeking equity to grow their business’. Even some of the world’s most reputable businesses like Google, Facebook and Twitter have been on the receiving end of the angel investor scheme.
Angel investors are entrepreneurs who have already been successful, made their fortune and want to invest their money back into start-ups. The investor provides equity finance in return for shares in the business, providing it with money to grow. However the benefits can go way beyond just the finances as their experience and connections are often invaluable.
Crowdfunding has become a popular option among start-ups; Kickstarter, Indiegogo and Fundable to name a few. Last year alone 22,252 projects were successfully funded through Kickstarter and $529 million was pledged (that’s over $1,000 a minute).
Supported by the public through their own personal funds, businesses can pitch their idea and the public decide how much they want to contribute. The public input often has an influence on the ultimate value of the product and in some cases the pledgers become shareholders, contributing to the development and growth of the project over time. Currently most crowdfunding pages use a reward based model; rewarding those who invest in the project (often with the product that is going to be produced).
So when considering your funding options, don’t forget that there’s a wealth of opportunities aside from the traditional start-up loan – what will you choose?