Understanding your finance options Open in new window
Business funding FAQs Open in new window
When starting or growing a business, getting hold of funding is often a key step. It can help you turn an idea into a reality.So it’s really useful to understand how the process works.
Loans, grants, and crowdfunding all have their advantages, but the small print can be hard to navigate.
In this guide, we’ll explore how you can find funding for your business.
Understanding your finance options
Business finance options generally fit into three categories:
- Grants which you don’t need to pay back.
- Loanswhich you’ll need to repay later.
- Investorswhere you sell a stake in your business in return for funding.
However, even within these three categories, you’ll find variation. Here are a few common ways to achieve funding for your business:
There are hundreds ofgovernment grantsavailable for small businesses. These could help you get funding for things such as business rates, new premises, staff training, or buying IT equipment.
One clear benefit of a grant is that you won’t need topay it back. However, just be aware that if you make an overall profit oncegrant incomeis included, it may be subject totax.
It’s also worth noting that grant applications can be tricky and take a long time. Each one has its own eligibility criteria,application processes, and stages. So do have a good read of the supporting information before you apply.
If you have it available, then investing your own money into your business has a range of benefits. For example, you won’t need to complete funding applications or pay interest. You also won’t owe anything to lenders or investors in the future.
There is the risk of losing your personal savings if your business were to fail.
However, depending on your circ*mstances, you may not be able to access the level of funding you might receive from a bank or other lender. If you’re a start-up, you may also miss out on mentoring and business support that might be rolled into your funding package.
Crowdfunding platforms are a popular way to get smaller investments from larger numbers of investors.
First, you’ll need to upload a compelling message to your chosen platform. This can detail why people should invest in your business, and what they may receive in return.
This is a good idea for smaller, consumer-facing businesses that may have a community benefit or local angle. And it works, some businesses have raised millions through crowdfunding.
Angel investorsare typically high net worth individuals who provide seed funding to startups. This is usually in exchange for a stake in yourbusiness.
Often, angel investors are successful businesspeople. This means they could provide invaluable guidance. However, you’ll need to inspire them with an outstanding pitch and proposition first.
Venture capital is like angel investment but on a bigger scale. You’ll need to convince investors, who often act on behalf of a wider firm, to buy a stake in your business.
Big money is often at play here, usually over £1 million and you may need to go through several competitive pitching rounds.
If you’re looking for a business loan, there are normally three main options to choose from.
- Start-up loans are tailored towards new businesses. They often don’t require much in the way of credit or trading history. Instead, you’ll probably need to show your lender a business plan and projections. You may look atprivate lendersor government-backed funds such as theStart Up Loans Scheme.
- Traditional loans are better suited to more established businesses or those that can demonstrate profit, revenue, and turnover.Alternatively,you may be able to offer collateral or a personal guarantee as a director of your company.
- Small business loans are a form of lending that's offered specifically to small to medium size businesses. Funds can be used for different purposes from business expansion to managing cash flow. NatWest offer small business loans from £1,000 to £50,000. Learn more aboutNatWest Small Business Loan
- Other lenders may offer alternative lending products with their own terms and conditions.
Learn more about how to borrow money to start your business.
(i) Security and / or guarantee may be required. Product fees may apply. Over 18s only. Subject to status, business use only.
Peer-to-peer (P2P) finance sits somewhere between crowdfunding and a business loan. Your funding comes from everyday people who are looking to get better returns from their savings than with an everyday savings account.
Your investment will be allocated from this pool of money by aP2P lender. It will then be treated as a normal loan that you’ll need to pay back with interest. P2P lenders often operate with low overheads and can offer competitive interest rates.
Which is best for my business?
Grants, loans, and investments could all be useful ways to help your business. When it comes down to it, there’s no single best option for everyone. Certain funding methods may have their advantages, but they may not always be the right choice for you.
Creating a detailed business plan can help you clarify your capabilities and ambitions. It’s also a great tool to understand your investment options.
If you’re looking to get your small business off the ground, the NatWest Accelerator is here to help. Our free programme is designed to help entrepreneurs scale their businesses to the next level.
Find out more and register your interesttoday.
Business funding FAQs
You don’t necessarily need money to start a business. Utilising your skillset to provide a service is a great way to start a business with little or no overheads. You can also use tools like social media and organic campaigns to promote your business for free. You can even create a free website. There are plenty of resources to help too, like ourNatWest Accelerator.
Each start-up is different and may have different experiences when getting funding. A simple way to get started is throughcrowdfunding or asking friends and family for support. There is also a range of loans and grants available tailored towards startups, which could help you get extra cash.
Creating a profitable business is a slow process that may take several years. But, if you maintain low overheads, you may start to see profit earlier than that. Every business has a different experience when it comes to making a profit.For some, it may happen relatively quickly while, for others, it may take a very long time, or not happen at all.
Related content
Want to know more about the different options available when it comes to business borrowing and saving? Take a look at the rest of our guides:
How can I borrow money to start my business?
How do business loans work?
Compare NatWest Business Loans and Finance
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