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How to get funding for a business

Published on: 4/17/2024 12:00:00 PM

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There has never been a better time to start a business. You may be wondering how to get funding to start a business. There are so many amazing ways to secure the funding you need to get your idea off the ground. From business start up support to equity investment crowdfunding to private investors, the business finance options for how to secure business funding have never been so simple.

As part of the funding process, you’ll likely meet with different potential investors, funds, or financial organisations, all keen to understand where your business is. Particularly, they will want to know where you’re looking to be in one, three, five, or even ten years. You can prepare a few key things ahead of time to aid these conversations.

The best options for getting funding for a business

There are many different paths you can choose to take when it comes to securing funding for your business. Knowing how to get funding to start a business is one thing, but when you’re starting up, here are some finance options that you can use for funding.

  • Family and friends

Family and friends can help provide funding in the early stages of your business. Getting that initial boost and support can help get your project moving to the point where other sources of funding become available. There are positives and negatives to getting funding from family and friends. 

The positives that come with funding from family and friends are that the terms are flexible and faster, and the interest on repayment may well be a lot lower than other sources, such as a bank loan. The issue with funding from friends and family is that you will mix your personal relationships into your work life, and if things go wrong, there can be damage to these relationships.

  • Crowdfunding

Crowdfunding is great for many different reasons. Not only does it generate you a pool of funding to work from, but it also brings in an interested audience that may become returning customers when your business launches. Crowdfunding is perfect for businesses that have a large growth potential that is sure to attract attention. 

The pros of crowdfunding are that you have a large pool of people from the general public who may have never found your business otherwise. The issue with crowdfunding is that you must be patient, as it can take a long time for the funding goal to be met. Having a niche business may only attract people from a smaller pool, but a business in a larger field may be swallowed by the oversaturated market. 

  • Bank Loans

Bank loans are still a popular source for funding a business, but the inherent risks make using bank loans as the sole funding source an incredibly risky venture. When used correctly, a bank loan can prove a simple and effective tool to finance the growth of a business but when used incorrectly it can spell disaster for you and your business. 

It is always integral to research the type of loan you are looking for, the terms of the loan and the interest rates that would come with it. The positives of a bank loan are some banks will offer low interest rates based on your credit score and unlike with private investors, you do not need to give over any control of your business. The negatives of securing a business loan are that it can be a long process and if your business does not survive you may be burdened with repayments, even when you’re not earning revenue. 

  • Angel Investors

Angel investors for small businesses are a great alternative for early stage funding. The Angel Investors are a collective of wealthy individuals who provide business funding in exchange for a share of the business. An angel investment can help a business go to the next level, and with a team of investors who may have knowledge of the market space, you can gain valuable information. 

The positives of Angel Investors is that, along with the money, they bring knowledge and experience to help guide you through the early stages of operation. The negative that comes with an angel investment is that you will have to give up control of parts of your business, and if you are intent on retaining all of your business, then this method of funding may not be for you. 

Have a comprehensive business plan

Having a business plan is integral to ensuring the day to day running of your business goes smoothly, but it can also be used to show potential investors the roadmap for the future and help secure funding. We have a comprehensive guide if you wish to know how to write a business plan. 

Knowing how to get funding to start a business can be as simple as having a solid business plan with clear objectives for both the short and long term future. The business plan can simply include a description of your business and how it operates and an overview of the team structure, including the management team or senior leadership. 

You should show clear evidence of market analysis and the opportunities you can take advantage of in the market. This includes looking at competitors and where you rank among them. Finally, you should include your financial projections and performance, as well as your planned growth objectives and how you aim to achieve them. 

Business plans are valuable tools in funding conversations as they can clearly demonstrate where your business is at, where it hopes to be over a number of years, and how it plans to get there.

Start creating your plan by using this template.

Integrated Forecasts

This combines a number of different financial reports and measures to build a fuller picture of how your company is currently performing, how it expects to perform over a certain period and support informed decisions about your future financial position. It can show where you are lacking funding and the areas you may need to seek funding for, and is key to knowing how to get funding for a business. 

An integrated forecast will typically include your business's balance sheet, profit & loss statements, and cash flow forecasting. The latter demonstrates how much money you might estimate going in and out of your business over a specific time, setting out incomings and outgoings to help you make informed decisions about your future cash position.

Credit appraisals

These are assessments carried out by banks or other lenders prior to providing loans or financing. Appraisals test a proposed project's commercial, financial, and technical viability, aiming to understand the risks associated with offering a business credit. If you are ever looking to take out a loan to help secure funding for your business, then a credit appraisal will be performed, which is the most important step to determining whether you are eligible to receive a loan. 

Knowing how to secure business funding

Now that you know where and how to get funding to start a business, you can choose to navigate any of the paths we have explained for you. Be sure to always check your business plan and business strategy to see where funding is needed and, realistically, when you will be able to pay back any loans or if you can afford to give up control of parts of your business to secure it. 

Every funding option comes with its own set of risks that can impact your business's growth or the future of your business in its entirety. Knowing how to write a business strategy can help you navigate the pitfalls that can come with business funding. Be sure to always keep an eye on your cash flow and forecasts before, during, and after acquiring funding.