Three Surefire Ways to Fund Your Small Business
It goes without saying that starting and nurturing a business to success is always a challenge. But, in current times, with a global pandemic disrupting virtually every aspect of our day-to-day lives, keeping your business afloat can be even more daunting. Furthermore, when you need assistance with the funding for your business, different people offer you varying advice about where you should turn to for help, whether it’s family and friends or perhaps crowdfunding. Many options are out there, but what are the best ones to take? In this article, we list three sensible ways to fund your business, helping you make a confident decision so you can get your business truly off the ground.
What Constitutes a Small Business?
A small business is identified as a privately owned corporation, partnership or sole proprietorship that has less employees and annual revenue than a regular-sized business or a corporation. Of course, the word ‘small’ is subjective, and its definition in relation to business varies depending on the industry and country you are in. For example, in the UK, a company generally qualifies as small if it satisfies two or more of the following:
- Has a turnover of no more than £10.2 million;
- Has a balance sheet total of no more than 5.1 million;
- Has no more than 50 employees.
The qualifying factors differ according to country and industry. However, no matter how small businesses are defined, they are imperative to our economic growth. Small businesses constitute the majority of companies operating in the UK. At the start of 2021, there were 5.548 million small businesses (with 0 to 49 employees), 99.2% of the total business population. Indeed, in the UK, small and medium-sized enterprises equate to 99.9% of the entire UK business population!
Top Ways To Get Funding For Your Small Business
Let’s get right to it and list some great ways for you to get funding for your small business.
Family and Friends
One very popular and effective option is receiving funding from your family and friends. This can be a great way to round up some initial capital for a business. Funding from relatives or close friends is a bright idea, as those closest to you will be more likely to believe in your vision and want to help you succeed. However, caution is always advised because if in the unfortunate event your business does not work out, your personal relationships could be put at risk, especially if your agreement has not been appropriately structured.
Therefore, if you do choose to go down this route, it may be a good idea to structure this funding as a high-interest loan for 12 months. Ask for just enough to actually launch the business into operations, develop some additional pitch material if you are after the big bucks, or perhaps use it to build a fantastic website. As annoying and costly legal fees are, it is highly recommended that everyone involved also gets reputable legal advice. Failure to do this could lead to an expensive future down the road.
An angel investor is sometimes referred to as a private investor, angel funder or seed investor. They are typically individuals with high net worth who willingly provide financial support for small startups or entrepreneurs. This is not done without expectation, as in return, angel investors generally expect ownership equity of the company. This person can commonly be found among family and friends. The funds of the angel investor can be provided in different ways, such as a one-time investment to get the business running or a regular investment to support the business through the early and challenging stages of a business.
This is a highly recommended option by many as angel investors can inject a business with real success through their monetary input. A fantastic method to build trust with your investor is to give back their money in a timely manner plus interest. However, they may not be the perfect financial partner in the long run, which is something to bear in mind. Once you have adopted the help of an investor, you need to be aware that they will henceforth own a part of the business, and you will have an obligation to act in their best interests.
It can be difficult to attract an angel investor, and when you do engage with one, it is crucial to present your business in the correct way. Ensure you are clued up on your business plan, be completely transparent, and build a relationship between you based on trust and mutual respect.
Recovery Loan Scheme
Our final suggestion is perhaps the best. You can apply for a Recovery Loan Scheme (RLS) from accredited loan scheme lenders. The Recovery Loan Scheme (RLS) was first launched in April 2021 to support access to finance for UK businesses following the Covid-19 pandemic. Many businesses were adversely affected by this global pandemic, and this scheme can assist them in recovering. The RLS was designed to support businesses that can afford to take out other finance for business purposes, such as investment, growth and managing cash flow.
There are different avenues to consider when looking for funding for your small business. It can be tricky to determine the best option, whether it is trying to fund everything on your own, confiding in family and friends for help or perhaps even going to the bank for a loan. This article has suggested three surefire ways that can help you fund your business and get your business truly started.