Editor | 2 September 2016

Four of the best sources of funding for starting a new venture

What is the biggest barrier to starting a new business? A lot of entrepreneurs - and people that almost became entrepreneurs will tell you that it is finding funding.

Business ideas that sound very exciting on paper can suddenly look a lot more wooden when the time comes to stump up the capital. 

Whether you are a completely new entrepreneur, thinking of starting a second business or want to spin off an existing company, funding will always be important. But knowing where to secure it from can be tricky. Here are four of the best.

Government backed Start Up Loans

Start Up Loans, funded through the government through the British Business Bank, give new ventures the means to get up and running quickly. Since 2012, the scheme has delivered £250 million in funding to start ups, with money going to everyone from high potential digital start ups to rec centres in need of cash.

Loans of between £500 and £25,000 are available and charged at a 6% fixed interest rate. Loan terms are between 1 and 5 years, but the real advantage of these loans over other private loans is that the government backed loans are delivered alongside lots of high quality support and mentoring.

Grants

Grants are one of the most sought after sources of funding, most obviously because the money doesn’t usually have to be paid back. Grants give business owners more freedom to prioritise other objectives, instead of worrying about paying back financiers.

Grant seekers should be prepared to put up some of their own money and they should definitely have a good business plan if they want to impress. Lots of different grants are available from lots of different operators. Those interested should check with the European Commission, the national government and local and regional bodies.

Self-funding

In an uncertain climate a lot of entrepreneurs are choosing to self-fund their enterprises to provide a little more protection. Although starting a business on a self-fund budget can be tough it is not impossible.

Shoestring budgets are not uncommon in certain sectors and, if there are signs of early success, it puts you in a good position to seek more traditional sorts of funding like bank loans. This is a popular funding pathway for entrepreneurs starting a second or third business venture, because existing businesses can be used to fill any funding gaps.

Crowdfunding

Crowdfunding, the practice of funding a project or venture by raising money from a large number of people over the internet, has exploded in the last few years and democratised both business ownership and investing.

Crowdfunding can be done in exchange for capital (selling a 0.5% stake of the business in exchange for a £500 donation, for example) or for gifts (trading a finished product for a small donation). It is a good way for businesses to raise capital without giving away too much equity or control. Crowdfunding schemes are getting more popular because there’s no big investor looking over your shoulder.  

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