Business

8 Options to Consider for Funding Your Small Business Venture

By Ryan Bradman | December 21, 2022

Table of Contents

If you’re an entrepreneur, business-minded and have an idea that you cannot wait to share with the world, there may be one question that keeps popping in your brain – how am I going to fund my venture? The good news is there are tons of avenues you can go down to obtain the cash required to get your startup up and running.

From traditional bank loans to leaning on loved ones, here we will explore many of the popular options entrepreneurs use to get the ball rolling.

8 Options to Consider for Funding Your Small Business Venture

Family and Friends

It’s very common for parents, friends, or even siblings to help financially support your startup in its early stages. This option is most suitable for companies who require initial support to prove the concept can be a success. Unlike some of the options listed below, lending money from a loved one can be a much quicker process and have more flexible terms. Also, depending on how much interest you pay your loved one, this could be an excellent investment for them.

Although there are certainly pros attached with borrowing from a family member or friend, we need to discuss the cons too. Mixing business with pleasure can have downsides. Should something go wrong and you’re not able to pay back what you owe, this can destroy relationships. Because of this, you must thoroughly assess the possible impact of your startup failing before going any further.

Bank Loan

Traditional bank loans are a popular source of funding for many startups. If used in the right way, bank loans provide an effective and simple way of financing the growth of your new business. However, ensure you conduct plenty of research into the different kinds of loans, interest rates, and terms and conditions before making your next move.

One of the main advantages of a bank loan is they can offer low interest rates. Although, this will depend on your credit score. You will not have to give up any control over your startup too. One of the prominent disadvantages of a bank loan is the process can be incredibly long and time-consuming, so you must bear this in mind.

Short Term Loan

Some entrepreneurs look at short-term loans as a way to fund their startup. These can help in getting the cash together to kick off your project. This funding method may be of use to you if you are just bridging a gap and are confident you will have the funds to pay it off as and when required.

One of the main advantages of short-term loans is the process is normally quick and easy. However, be aware that interest rates can be very high, and costs can soon mount up. Find a quote to your liking and that aligns with your business needs.

You may need to borrow some money to help you pay for your personal bills while trying to carry your business to success. Take a look at Sunny, who specialise in short-term loans. You can get a quote for a personal loan to help you pay the bills, or deal with any other emergency household issues, while your main funds are tied into the business.

Crowdfunding

Should you go down the crowdfunding route, you can raise the total amount of cash needed to fund your startup costs from the general public. This can be done online, meaning you don’t even have to move a muscle! People can either take a stake in your startup or lend you the money. It’s most suitable for startups with a great growth potential that will attract lots of attention.

One of the major pluses of crowdfunding is the large volume of people you can reach. Because of this, you have a much better chance of scoring a good deal. Although, a downside is it can take a long period to reach your target. What’s more, you may need to invest lots of effort into publicising your crowdfunding campaign.

Business Angels

Angel investors are wealthy businesspeople who provide funding in exchange for a share in your startup. While some investors work in teams, others operate alone. If you don’t like the idea of giving out shares to others, this isn’t a wise business move to make, even if you could obtain the funding you need to get things started.

There is a key benefit to leaning on angel investors. Because they’re in the business world and have many years of experience, angel investors can give you valuable advice, guidance, and of course, financial support. They can come in handy if you require additional funding later down the line too. But, remember, you will have to sacrifice a part of your business for this luxury.

Venture Capitalists

Venture capitalists are investors that put in a considerable sum of money into a startup. This tends to be a significantly bigger investment when compared to what an angel investor would give. In exchange, venture capitalists will ask for equity in your startup. In most cases, their aim is to help the startup grow quickly so they can receive a great return on investment in a quicker timeframe. If you are a new company with high growth potential and are okay with giving up some equity, this may be the perfect option for you.

Another benefit of venture capitalists is they can also provide advice and guidance to help develop your startup. What’s more, they can open doors thanks to their contact list who you can make good use of. One of the cons of venture capitalists is you’ll have to give up a greater chunk of your company. This is because of the higher amount of funding they’ll provide you.

Guaranteed Loan

Guaranteed loan schemes are for small startups that do not qualify for bank lending. This may be because you do not have a trading history or cannot guarantee financial security. To qualify for a guaranteed loan, you’ll need to demonstrate that your business plan is bulletproof.

For entrepreneurs who have explored many of the options above to no avail, you may be able to obtain a guaranteed loan. What’s more, you could have lower repayments. One of the downsides of a guaranteed loan is there are strict conditions that you must meet in order to be accepted.

Business Grant

Essentially, business grants are free money – what is not to love? But, as you will know only too well, there’s a pretty big catch. There are plenty of business grants out there. However, each will come with different conditions that must be strictly adhered to. Some business grants are only available for companies in a particular area, whereas others can only be used by startups in particular sectors.

How you get a business grant will vary. You’ll find some provide a lump sum once you’ve been accepted, while others pay in instalments. There are some business grants you may need to pay and claim the cash back, whereas others required matched funding. Although business grants are definitely enticing, make sure to read the small print!

As shown above, all the options listed come with their pros and cons. For that reason, you should take plenty of time to research into each one. Also, be realistic with what you can afford to lend. If you haven’t got much trading history, it can be difficult to secure funding. However, that’s not to say it’s impossible.

Once you’ve explored your options, you’ll know soon enough which one is right for your needs to help get your startup off the ground and ready to trade.