Money talks. In fact, it practically screams. For all the hard work you can put into getting your business off the ground, raising capital for your business is ultimately what can help your company reach its potential. But where and how can you get investment to help your business boom? Read our guide to funding business growth, from small business loans to crowdfunding for businesses.
Where to get investment
Unfortunately, there's more to raising capital than meeting a millionaire at a dinner party. But while money doesn't grow on trees, there are plenty of places where you could get investment for your business. Let's look at some of the pros and cons of different ways you can raise funds to help your business soar.
Apply for a small business loan
Going to a high street bank for a small business loan is the traditional way to get funding for your business.
- You can access a day-to-day cash flow to operate and grow your business.
- If you have a sound financial history and a good business plan, you can take out a loan at a competitive rate of interest.
- By building a relationship with a bank, you can benefit from their knowledge on the most suitable small business loan for your company.
- You'll pay interest rates on the loan, which may be higher if you're not deemed a safe bet by the bank.
- If you take out a secured loan, where you use the company's assets as security for your loan, your assets could be repossessed if you fail to make the repayments.
Get venture capital funding
You don't have to be in a Silicon Valley Netflix drama to get venture capital (VC) funding for your business. VC refers to high risk capital investment offered to early and mid-stage companies with the prospect of high returns. Raising venture capital for a business is challenging; you will need to put together a persuasive pitch for a dedicated venture capital firm, some of whom only accept third-party referrals, so networking always helps!
- Venture capital can help a business scale-up rapidly.
- You can target specific venture capital firms with a portfolio of similar companies to yours, so potentially, you can be confident you're in capable hands.
- As venture capitalists will be after a quick return on their investment, don't expect them to care too deeply about your business.
Find an angel investor
Not to be confused with venture capital, angel investors are wealthy individuals who invest their own capital, rather than investors' money (unlike venture capitalists). Online resources like the Angel Investment Network are one way to find an angel investor in the UK.
- An angel investor will have more of a personal interest in you and your business, compared to a venture capitalist.
- Finding an angel investor means you won't be paying high interest charges to a bank.
- Any angels' investment comes with strings attached: they'll own shares in the company and may want a strong influence over the day-to-day running of the business.
Crowdfunding for businesses
Thanks to the internet age, crowdfunding for businesses has really taken off. By developing and sharing a pitch for your business, you can raise large amount of money from online contributions from friends, colleagues and the wider global public. There are various crowdfunding websites suitable for small businesses, such as Seedrs and Kickstarter.
- You won't be dependent on venture capitalists or angel investors who may demand a big slice of your business.
- Rewards-based crowdfunding can create a loyal customer base from the outset.
- You can judge the public's reaction before you fully launch a product or service, helping to reduce risk.
- Running a crowdfunding campaign can be hard work and requires dedicated engagement so that you reach as many people as possible.
- A successful crowdfunding campaign does not mean the business itself will be viable, even if you raise the initial capital to get started.
- In exchange for contributions, you will need to 'give up' something, whether that's rewards or even equity in the business.
Your own cash reserves
It's a reality that a lot of entrepreneurs will dip into their own savings in order to kickstart their business, especially in the early stages. If you're working in a permanent job to put aside money for your side hustle, you're not alone! Any extra cash you can stockpile could help top-up the capital you raise for your business.
- It's your money - you can do what you want with it!
- You'll need to make sure you can afford your day-to-day living costs - from paying the mortgage or rent to putting food on the table.
Borrowing money from family
And of course, the Bank of Mum & Dad (or a brother, sister, uncle or cousin) is perhaps the last ditch saloon when it comes to raising capital for a business.
- Borrowing money from family comes with the best interest rate of all - zero.
- Mixing business interests with family ties can be unwise, particularly if the investment doesn't pay off, or you can't pay back the cash.
What do investors look for?
Whichever route to raising capital you take, it's worth bearing in mind that not every investor is solely looking at cold, hard cash in the bank. Aside from your profit to-date and financial projections, they'll want to see that you have a credible business plan, with a detailed understanding of the market, and a team in place to deliver your goals. And of course, they'll want to buy into your vision and recognise that your product or service is one whose time has come.
For more insight, read our guide to growing a company. Whichever way you end up getting your business off the ground - good luck!