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How to raise capital for your new business 

Starting a business can be costly. If you require premises, manufacturing or staff, the start-up costs can mount up quickly. A 2016 Moneywise survey suggested that it costs in excess of £27,000 to start a business – an amount that most small business owners don’t have lying around.

So, how can you raise capital for a new business if don’t have access to the funds you need?

Grants
HMRC provides numerous schemes to encourage enterprise in the UK. The money for these grants and schemes is gathered from taxpayers money, so competition can be fierce. To find out if you’re eligible for most of these grants, you’ll be required to apply with detailed information on how you will use the investment. For more information on finance and business support for UK businesses, check out the HMRC database and enter your funding criteria.

Start-up Loans
The likes of HMRC, Richard Branson and many more have begun lending to start-ups, aspiring business owners and entrepreneurs. Of course, it’s worth remembering that loans do have to be paid back. The Start Up Loans scheme is an HMRC initiative that can lend funds from £6,000 to £25,000 with an interest rate of 6%. Most loans needs to be paid back within 5 years. Branson’s answer to start-up loans, Virgin StartUp, offers both financial training and loans that average around £5,000.

Angel investors
We’ve all seen Dragon’s Den– that’s angel investing in action. An angel investor will normally invest their own personal finance in exchange for a share in the company. This means that they will take the same percentage of the company’s profits – once it starts trading successfully. Angel investors often offer their expertise and guidance under the assumption that they will begin to see a return on their investment within the first few years.

Crowd-funding
A fairly new phenomenon, sites such as KickStarter encourage crowd-funding. This is the process of publicly asking for money to help you start your business. There are 3 main types of crowdfunding: donations, equity and debts. Donations do not have to be paid back, whereas equity crowd-funding requires you to sell percentages of your business to investors and debt crowd-funding means that the money must be paid back, with interest.

Bootstrapping
This is the colloquial term for funding your own business. If the upfront costs are minimal, you could take out a 0% credit card to get you started, or borrow money from friends and family.

How to prepare – before trying to raise capital for your new business:
In order for you to attract investment to your new business venture, there are few things you should bear in mind.

  • Identify the type of funding you need – Would an angel investor be great from an educational point of view? Would you be more comfortable applying for a start-up loan? Consider the pros and cons for your personal situation.
  • Create a financial model – No one will lend to a business with no plan, or no idea how much capital they need. Seek out help if you need to put together a cash-flow forecast or business plan. Show that you have prepared for different outcomes to ensure that any investment is safe.
  • Be realistic – Target your funders carefully. Whilst there might be investors who will part with millions, are they likely to invite you in? Or would you be better off looking into something like the Angel Investment Network?

With investment, it’s a case of ‘fail to prepare, prepare to fail’. Start by having a watertight business plan and work outwards from there to decipher the amount and type of investment you need. As with all financial advice, it’s best to discuss your own personal circumstances with someone in the know.

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