How do you get funding for a start-up?
Posted on 28th May 2020
Many studies have shown that around 70-80% of small businesses in the UK fail within their first five years, and around 60% of start-ups fail within the first three years. Even start-ups that get past the three years and grow into a small business are still at threat of failing. It could be argued that a lack of funding can be one of the reasons this happens - and many start-up entrepreneurs aren't even aware that there is funding available! So, what are the options out there?
The New Enterprise Allowance
Start-ups are usually begun by entrepreneurs taking on a challenging role as a young business owner, and some might see you as a risk not worth taking on. This is where the New Enterprise Allowance (NEA) scheme comes in. It's a government-backed scheme that you can use if you have a feasible and well thought out business plan. You have to be unemployed, so you can’t work full-time or part-time and run your business at the same time to be eligible for an NEA. However, if you do qualify, you will receive £33,124 over the course of 26 weeks. The payments will be made on a weekly basis, i.e. £1,274.
In order to qualify for this funding, you must be over the age of 18 and eligible to receive benefits such as Jobseeker’s Allowance, Employment Support Allowance and Income Support. If you’re already self-employed and receive Universal Credit, you may also be eligible for NEA.
Search for an angel investor
When receiving funding isn’t the main issue for an entrepreneur but rather getting enough funding, you may have to be willing to let go of some of the ownership of the start-up. If this is something you’re willing to do, looking for an angel investors is a great option.
Angel investors normally have a high net worth and they provide a substantial amount of funding to start-ups in return for a large portion - or even majority - of the share. If you have a great idea and know you can make a success of your products and services, this is one funding option you may feel is too good to miss. The UK Angel Investor Network connects entrepreneurs with angel investors, so could be a good place to start.
Try a venture capitalist firm
Venture capitalist firms are made up of clients that want to invest in several businesses. They offer a large amount of money to businesses in exchange for equity in the business. Since the risk is spread around many investors, you’re more likely to receive a larger amount of funding than an individual angel investor may give you.
The great thing about receiving funding from a venture capitalist firm is that they are beholden to their clients and will want you to succeed quickly. To increase the chances of this occurring, they will offer you expertise, advice, contacts and also networking opportunities to grow and expand your knowledge and worker base.
The downside is that again, you may need to give up a significant amount of your business. In the long term, it may result in the firm taking the majority share of your business and therefore controlling it. This is something you have to weigh up and monitor as time goes on.
And the modern way - crowdfunding!
Crowdfunding is a very popular method to receive start-up business funding and has become increasingly popular over recent years. If you can articulate your idea and present your business plan in video form, you can spread your message all over the world.
Using websites like Kickstarter, Crowdcube, and Seedrs, you can reach a global audience, but you’re essentially relying on the good nature and generosity of strangers to give you the funding you need. Even if members of the public are only giving you a small amount each, if enough of them do it, you could achieve your funding goal more quickly than you initially thought.
Next steps
Want help with applying to funding, creating a business plan or managing your finances? Feel free to give us a call or drop us an email. We’ll be more than happy to help advise you.
Written by
Nicola J Sorrell -
Effective Accounting
Founder | Xero Champion | IR35 Expert
Tagged as: Business Tips, For - Limited Companies, For - Property Owners & Landlords, For - Self-Employed
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