If you’re planning to find a new business, you’ll need enough startup capital to get this venture off the ground. And once you’re up and running, you’ll need additional business finance and investment at each stage of your growth and expansion along the business journey.
But where does this business funding come from? And what are the best routes for accessing the finance you need to bring your business plans to life?
Five Ways to Access the Right Funding
There are multiple routes to funding and many specialist types of finance that cater to a specific industry or a particular business type. However, it’s always a good idea to understand the funding fundamentals and their options for your business.
We’ve summarised five different funding routes that are worth considering:
Bank Loans and Overdrafts
Traditionally, your bank was the go-to place for business funding. Taking out a business loan allows you to pay back the loan over an agreed period and in easy installments. Extending your business overdraft can give you more credit to play with. But in recent times, banks have become more reticent to lend and will need cast-iron evidence of your ability to repay any agreed loan or overdraft.
- Pros: Large sums of money can be borrowed
- Cons: Strict lending criteria and may require collateral
Private Investors
Getting high-net-worth individuals to invest in businesses is another well-worn path to funding. Private investors can be a great source of funding if your business is unable to qualify for a bank loan or needs a large amount of funding quickly. However, investors will usually expect shares in the business and some form of control over the direction and running of the company. Shrewd investors will also want a guaranteed return on their investment (ROI).
- Pros: Can provide large sums of funding and more flexible criteria than banks
- Cons: Can be difficult to find private investors and they will expect good ROI
Business Loan Providers and Niche Industry Lenders
Many lenders specialise in providing loans to businesses in specific sectors, or at particular points in the business journey. These lenders may have less stringent lending criteria than the main high-street banks and can offer more flexible repayment terms. If you’re trading in a niche and need money quickly, these lenders are well worth adding to the mix.
- Pros: Less stringent lending criteria than banks and flexible repayment.
- Cons: Interest rates may be higher than bank loans and collateral may be needed against your loan