Most Realistic Ways to Fund your UK Small Business

Starting a small business in the UK can be a rewarding venture, but it can also be financially challenging. Whether you need money to jumpstart your business, maintain your operations, or expand your reach to new markets, finding the right funding source is crucial to your success. Here are some of the most realistic ways to fund your UK small business.

1. Bootstrapping

Bootstrapping is the process of funding your business using your personal savings, credit cards, or other means of personal finance. This may involve sacrificing personal expenses to reinvest in your business, but it can provide you with full control over your business and allow you to keep all profits made.

2. Crowdfunding

Crowdfunding is a popular method for raising funds, especially for startup businesses. Using online platforms such as Kickstarter, GoFundMe, or Indiegogo, businesses can pitch their ideas to a large audience and receive donations from interested investors.

3. Bank loans

UK banks offer various types of loans intended for small businesses that can be used to fund a range of expenses like new premises, staffing costs or equipment. It is necessary to prove that your business can repay the loan, meaning you should have detailed financial statements, a solid business plan, and a good credit history.

4. Angel investors

Angel investors are wealthy individuals who fund small businesses in exchange for equity in the company. They typically provide continued support and mentorship to the business, providing not only capital but also valuable expertise and networks.

5. Government grants and schemes

The UK government has various grant schemes available to small business owners. These schemes and grants can vary depending on the specific industry the business is a part of, such as the Creative Industries Fund or the Retail and Hospitality Grant Scheme. These financial helps can help small businesses kickstart or advance their operations.

In summary, funding your UK small business can be done through different means. You need to consider what options are available to you, what your repayment ability is, and how comfortable you are with offering equity or shares. Whatever funding route you choose, ensure you understand the financial implications and decide the one that suits your business needs the most.

Below are the points we will be looking at as we discuss Most Realistic Ways to Fund your UK Small Business

6. Invoice financing

Invoice financing is a method of borrowing against your outstanding invoices. This means you can access the cash tied up in unpaid invoices and receive an advance, usually around 85% of the total invoice amount. Once the customer pays the invoice, you will receive the remaining balance, minus the lender’s fees.

7. Business credit cards

Business credit cards can provide you with a flexible way of financing your business expenses. They can be used for a range of expenses such as equipment, supplies, or travel, and offer attractive rewards or cashback schemes. However, it is important to use this method of funding responsibly to avoid accumulating interest and damaging your credit score.

8. Friends and family

Finally, reaching out to your inner circle might be a viable option for some small business owners. A loan from friends and family can provide you with some financial flexibility without having to pay high-interest rates charged by banks or other lenders. However, it is important to treat this type of funding as a formal loan and ensure that all parties involved understand and agree to the terms and conditions.

Invoice Financing: A Way to Access Cash Tied up in Unpaid Invoices

Invoice financing comes in handy when you need quick cash to finance new business projects or pay off immediate expenses. This method of borrowing allows a business to obtain money by selling their unpaid invoices to a third-party lender for an advance payment, usually around 85% of the total invoice amount. The lender will then collect the payment directly from the customer and pass on the remaining balance to the business owner, minus a certain percentage of the lender’s fees.

Business Credit Cards: A Flexible and Convenient Financing Option

Business credit cards have become a popular method of financing for small business owners due to their flexibility, convenience, and attractive rewards. They offer a range of benefits such as cashback schemes, discounts, and reward points that can be redeemed for travel or other business expenses. However, it is important to use this funding option responsibly and manage your credit card payments effectively to avoid accumulating interest charges and damaging your credit score.

Friends and Family: A Viable Option for Small Business Owners

When starting a new business or when struggling with credit approval from banks, many small business owners often turn to friends and family for help. This method of financing can provide some financial flexibility without the need to pay high-interest rates charged by banks or other lenders. However, it is important for both parties involved to treat the loan as a formal agreement and to clearly define the terms and conditions, including the repayment schedules, interest rates, and penalties for late payments.

Leasing: A Cost-Effective Alternative to Buying Equipment and Property

Leasing is a method of financing that allows a business to rent or use any equipment, machinery or property for a certain period, usually 1-5 years, in exchange for monthly payments. Unlike buying, leasing provides a business with the necessary equipment without a huge upfront payment, making it easier to manage cash flow. Additionally, the leasing company is responsible for the maintenance of the leased property, freeing up time and resources for the business owner.

Merchant Cash Advance: A Fast, Flexible and Unsecured Funding Option

A merchant cash advance is another type of funding that can be helpful for small business owners who need quick access to cash. This funding option works by giving you an advance against future credit or debit card sales. The lender will then receive a percentage of your daily credit card sales as repayment until the advance is fully paid off. This financing option is unsecured, making it easier to access than other traditional loans.

Trade Credit: A Financing Option Provided by Suppliers

Trade credit is a financing option that is provided by suppliers and is based on trust. This financing option allows a business to obtain goods or services from a supplier without immediate payment. The supplier will then extend a certain period of credit for the business to pay for the goods or services. Trade credit can be a valuable funding option for small business owners since it doesn’t require collateral and allows the business to use this credit to purchase goods and services while preserving cash flow.

In conclusion, small businesses have a variety of financing options at their disposal, each with its own benefits and drawbacks. It is important for business owners to evaluate their financial needs, capabilities, and preferences before choosing a financing option. By carefully selecting the right financing option, business owners can effectively manage their cash flow, fund new projects, and achieve growth and success.

Helpful resources to get you going in the right direction with your own business:

Use the Business Plan Builder Tool to develop your own business plan. And use the Funding Database to find all government funding options for your small business.